The end of interest only mortgages
Following Coventry Building Societies announcement that they will no longer allow interest-only mortgages for first-time buyers – does this spell the beginning of the end of interest only mortgages?
The Council of Mortgage Lenders seems to believe that the FSA could well kill off interest only mortgages with its proposals for regulating the loans in the Mortgage Market Review.
The FSA wants to ensure that borrowers have plans in place to repay the capital element of the mortgages and that lenders are then responsible for monitoring this. Due to the potential costs to the lender to achieve this it could, therefore, lead to the withdrawal of interest only mortgages.
The CML says “It is far from clear that the costs and the impact of restricted choice for consumers would be matched by any wider benefits. There is clear evidence that the FSA’s approach had already resulted in more restricted availability of interest only mortgages. Some lenders have announced they will no longer offer them to first-time buyers, or to those wanting to borrow more than £500,000.
This could well leave borrowers who do not want repayment mortgages unable to remortgage.