OpinionMay 1 2013

Lack of evidence to support interest-only hysteria

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Once again we are seeing the making of public hysteria surrounding financial services, this time it is over interest-only mortgages and what some irresponsibly call the pending time bomb.

It is remarkable how some people can see the future, with no evidence, no pleas for help from borrowers, but armed only with their crystal balls they can see a gathering repayment storm.

Like all predictions, this may well turn out to be true, but those of us who are slightly more rational will want to see the evidence (see page 31).

Where is the evidence of exceptional defaults by those with interest-only mortgages? Where is the evidence of those with interest-only mortgages queuing up on lenders’ forbearance lists? Where is the evidence of interest-only repossessions?

All there is ‘evidence’ of, if that is what you can call it, is that borrowers are in many cases reluctant to tell lenders how they plan to repay their capital when the loan matures.

Some may see this as irresponsible, since early warning will give lenders enough time to make alternative arrangements to keep the borrowers in their homes. But that is hypothetical.

Now the City regulator has intervened in the issue, in a report published today, sends out a subtle warning that things are not how they seem with interest-only mortgages.

Until we see real evidence this must be seen as mischief-making by the FCA when it ought to know better; no matter who we ask for sound evidence on likely rogue interest-only borrowers – trade association, regulators, individual lenders, the registrar of county court judgements – we cannot seem to find any.

We are left, therefore, to conclude, that the regulator is using this to shore up its untenable case for the mortgage market review of which one of the presumed unintended consequences is the denial of massive numbers of young people – those who fail to qualify for a government-backed loan or do not have a bank of mum and dad – to put their first step on the housing ladder.

Financial regulation should have a wider social responsibility than just a narrow interpretation of risk perception and management. It also has a duty to first-time buyers.