Following Financial Services Authority (FSA) concerns over the area of interest only mortgages, Alan Lakey, senior partner at Highclere Financial Services, said Preferred was attempting to make its borrowers take out interest only deals. He said: “My client wanted to borrow £169,000 on a 13-year repayment basis. The calculator says he cannot afford this and would only lend to £124,000. But if he goes the interest only route he can borrow over £200,000. As he wants to borrow £169,000 it means he will be forced to go down the interest only route and, if he is disciplined enough, save £800 per month so the loan can be repaid.
“The effect of Preferred’s affordability calculator is to push the client into an unwanted interest only mortgage, which means I may risk the wrath of the FSA when they come calling.”
However, Roger Taylor, director of sales and marketing at Preferred, denied this was the case. “Preferred’s affordability calculator is a guide for brokers - it does not offer a decision-in-principle and it should not be used to push a customer into a repayment method that doesn’t suit their personal circumstances. Given the key differences between repayment and interest only loans, the effect of Preferred’s affordability calculator is to ensure we only lend sums that are affordable. As long as the borrower can tell us how he will repay the capital sum at the end of the term, then Preferred will consider lending more on an interest only basis while still meeting our responsible lending obligations.
“An adviser should always recommend the most suitable method of repayment for their client. If that means a recommendation for an interest only loan, then that is what should be recommended even if the customer’s original intention was to take a repayment mortgage deal.”
