Interest only loans won’t be banned

The credit crunch brought about serious financial difficulties not only for the home owner loan and mortgage markets, but also for the loan market as a whole. The loan market hasn’t yet got over the negative effects of credit crunch and it is likely to take much time to have it recovered.

Irresponsible lending and borrowing were named as the major causes of the credit crunch. It was a common practice among lenders to offer loans without thorough credit checks on applicants, who as a rule, couldn’t afford to repay the loan.

Finally, the Financial Services Authority (FSA) made a proposal that included a number of new regulations aimed at protecting borrowers from irresponsible lending. However, many loan market experts believed these regulations were just restricting the loan market rather than helping economy recover.

In accordance with the proposals, such loans as self certification loans and interest only loans had to be banned altogether since they bring up affordability issues. 

At the moment, with loan industry experts and trade organizations are discussing the proposals, with one of the major topics of discussion is the proposed ban on interest only loans.

In her speech last week at the CML conference, Sheila Nicoll of the FSA assured the lenders that the FSA was not going to place a ban on interest only loans.
 


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