Expo 2011: Interest-only has earned its place

On a lender panel debate, the business development director told delegates that interest only will become more accepted as long as checks are in place to ensure repayment models exist.

“Our concern is that it sounds a lot simpler than it actually is, because lenders were supposed to have these models in place before.

"There is a danger of lulling people into a false sense of security and letting them think that if they invest in a particular product then they will pay off the mortgage.

“What a great opportunity for professional advisers here, because it gives you the ability to actually review those products and give people a real sense of whether they’re going to be able to repay the mortgage.“

Fellow panellist John Truswell, head of accounts at Northern Rock, agreed with Gladwell.

Truswell said: “Given the current state of the market, it’s only prudent for lenders to review their books but there is a place for interest-only mortgages. It has got to be approached from a responsible lending point of view and we’ve got to make sure that the appropriate affordability tests are in place to ensure borrowers can repay the loan.”

Nationwide’s Paul Howard added that over the past two years the industry has seen interest only “used more in the way it should be” rather than the way that it was.

The lender panel also discussed the improvement in criteria for self employed borrowers over the past year.

Truswell said: “I think we’re seeing the start of a shift with lenders looking at their credit policy in relation to the self employed, with more lenders accepting clients with two years trading instead of three.

“The pendulum is gradually moving back the other way, although it won’t return to where it was we are seeing more opportunities for self employed people to take out mortgages.”