The FSA has explicitly stated it has no intention of banning interest-only mortgage products.

In a seminar session dominated by the interest-only issue at yesterday’s Mortgage Business Expo in Manchester, Lynda Blackwell of the FSA said the regulator would not be using the MMR to ban the products neither did it intend to “be prescriptive about the type of repayment vehicle” lenders could or couldn’t accept.

She also revealed that a number of lenders actively wanted interest-only banned.

She said: “Some lenders would have liked us to ban interest-only. Our view is that interest-only is suitable for certain borrowers. We’ve said to lenders that we want you to make an informed judgement.”

Blackwell also said that some lender reactions to the FSA’s thinking in this area had changed recently when they revealed the responsibility would be placed in their hands: “The lenders who said they didn’t want prescription, suddenly when it was over to them, said they now wanted prescription.”

In terms of when a lender would be required to review a borrower’s repayment vehicle to ascertain whether it was on track to pay off the capital, Blackwell said the FSA had gone against some of the advice it had received from consumer groups. She said that lenders would “at least once during the term of the interest-only mortgage” need to go out and check that the repayment vehicle was “on track”.

On the issue of whether property sale as a means of repaying the interest-only mortgage were to be banned, she said no but she did say that lenders would need to consider it as a method of repayment “very carefully”.

Responding to Blackwell, James Chidgey of Nationwide, voiced concern about how lenders’ actions, in relation to interest-only, would be viewed much further down the line.

He said: “10 or 20 years down the line where would the Ombudsman and the claims management firms be on this? Prudently we might want to review [the repayment vehicle] more than once. [However] where a customer sees us reviewing their repayment vehicle they may believe we are responsible for it.”