|
The News feed section of our website has been
provided by a 3rd party and as such we are not responsible for its content
or accuracy
FSA warns on interest only mortgages
The Financial Services Authority (FSA) is warning that 'a significant minority' of people who take out interest only mortgages do not have a proper repayment strategy in place.
Research carried out for the FSA found that consumers taking out interest only mortgages generally have a reasonable understanding of the risks involved.
However, 10% of consumers taking out interest-only mortgages have either no idea or at best only a rough idea of how they plan to repay the loan they have taken out.
A further 5% say they have a definite repayment strategy but the research challenges how robust those plans may be. Examples include those borrowers leaving it close to retirement to switch to a repayment mortgage and others, with limited equity, whose only plan is to sell their home.
Research in the report tested how borrowers, who had recently taken out an interest-only mortgage, planned to repay the loan and the extent to which those consumers understood the risks associated with this type of borrowing. 24% of new mortgages are taken out on an interest-only basis.
Clive Briault, Managing Director of Retail Markets at the FSA, commented, "There is nothing wrong with interest-only mortgages. However, consumers must be very clear about how they are going to repay the loans they take out. Consumers' repayment plans need to be realistic and robust. Consumers should not, for example, assume that house prices will continue to rise at the rate seen in recent years."
The research showed that cost is an important factor for many borrowers when deciding whether to take out an interest-only mortgage and that a higher percentage of lower income consumers were in the category that had no firm plans for repaying the loan.
The FSA has already said it is looking at the quality of the advice process within firms providing mortgage advice and will report on the outcome of this in January. The FSA will also be reviewing responsible lending policies to understand how they cater for the interest-only market.
|