Mortgage lenders have backed proposals to give first-time buyers and other underserved borrowers greater flexibility, while warning that regulatory reform alone will not solve the barriers to home ownership.
The Intermediary Mortgage Lenders Association (IMLA) welcomed the direction of the Financial Conduct Authority’s Mortgage Rule Review, which considers changes covering interest-only loans and irregular payment arrangements.
Responding to consultation CP 26/18, Mortgage Rule Review: Supporting First-Time Buyers and Under-served Consumers, the association supported the regulator’s decision to make many of its proposals permissive rather than mandatory.
This would allow lenders to decide whether to adopt the practices according to their risk appetite, operational capacity and commercial judgement, while retaining safeguards intended to prevent borrowers from overextending themselves.
IMLA said interest-only mortgages could help first-time buyers improve affordability and purchase homes that might otherwise be beyond their reach. It also welcomed confirmation from the FCA that such borrowing would not become universally available.
However, the association warned of the risks posed by borrowers remaining on interest-only terms for long periods without building equity. It suggested that lenders might choose to assess the credibility of repayment strategies more frequently than the single review currently required.
The trade body also called for further consultation on proposals intended to accommodate mortgage payments made at irregular intervals.
It warned that the changes could affect how arrears were defined and recorded, with possible consequences for borrowers’ credit histories unless the approach was applied consistently across the industry. IMLA said credit reference agencies should be included in further discussions.
Kate Davies, executive director of IMLA, said: “The FCA is asking the right question: are our mortgage rules more restrictive than they need to be? Recent relaxations have been sensible, and there is scope to go further, but nobody, least of all lenders, wants to return to the days of over-exuberant borrowing and lending.
“Our message to borrowers, particularly first-time buyers weighing up options such as interest-only, is simple: speak to a mortgage adviser. Many people assume they cannot get a mortgage when in reality they may be closer than they think.
“It is also important to be realistic about what regulation can achieve on its own. For decades the UK has failed to build enough homes, and no amount of product innovation can compensate for that.
“We would strongly support a well-designed successor to Help to Buy – one which increases the supply of smaller homes for first-time buyers and downsizers, avoids inflating house prices, and extends to second-hand properties as well as new-build – alongside a detailed review of Stamp Duty to encourage downsizing and get a sluggish market moving again.”
