Sheila Nicoll, director of the conduct policy division at the FSA, told delegates at the Mortgage Business Expo in London that its policy position on interest-only was not finalised despite market fears.
She said: “Our proposals in the [Mortgage Market Review] consultation paper were just that. They were ‘green’ proposals on how we should regulate interest-only lending moving forward – we have not made our mind up.
Nicoll continued: “We have always acknowledged that interest only can be a sensible option for some consumers.
“Our concerns centre around the cases where consumers had no visible means of repayment, where no questions were asked about how they intended to repay the mortgage and where it was clear that stretching affordability was the main reason for the mortgage being sold on an interest-only basis.”
She said that at the height of the market, one-third of all lending was interest only and three-quarters of these cases did not have a specified repayment plan.
Nicoll said: “We recognise the need to take our time over this and see no immediate need to move too quickly, because lenders are already changing their approach to interest-only lending.”
In addition, Nicoll said its MMR responsible lending proposals would not prevent self-employed customers accessing mortgages, because the FSA was not intending to be prescriptive over acceptable types of income verification or what can be included by lenders as income, such as bonuses or overtime.
“In the case of self-employed borrowers, we are not saying what the minimum length of self-employment should be, nor are we specifying what acceptable forms of income verification need to be. Our proposals should not therefore act as a barrier to the self-employed being able to obtain mortgages.
As now, they should be able to demonstrate affordability and the lender should have the necessary expertise to be able to assess and underwrite the application,” she said.
To clarify its position, the FSA is to hold a series of free MMR roadshows for intermediaries across the country in December and January.
