Interest only loans do serve a purpose

An industry expert has stated recently that interest only loans do serve a purpose and can prove invaluable for some borrowers. Her comments came as lenders clamp down on interest only loans and the UK’s finance regulator, the Financial Services Authority sets up new proposals that could wipe out these interest only loans altogether.

The FSA is putting together proposals that would see interest only mortgage loans coming to an end, with lenders being told that they will have to continue asking for large deposits and other measures being proposed that could seriously affect the ability of many people to get a mortgage.

Paula John from Your Mortgage said that the FSA was right in trying to put together regulations to stop irresponsible lending and reduce the risk of consumers taking out loans that they could not afford to repay. However, she also said that it was important to take into consideration that interest only loans did serve a purpose and could prove invaluable for some people.

Her comments came after a statement was made by the Intermediary Mortgage Lenders Association, which said that if the FSA regulations were put into force interest only loans could be made obsolete.

Ms John added that whilst it was right of the FSA to express concern over borrowers taking on mortgages and loans that they could not repay it was also a valid point by the IMLA that it could be a mistake to get rid of interest only mortgages altogether because some people could really benefit from them.                               

She stated: “I think [the IMLA] is right in sounding a warning bell that we could throw the baby out with the bath water and see the end of interest-only mortgages altogether.”

Tags: business, mortgage loans, Financial Services Authority, mortgage, whilst, Interest-only loan