The Financial Services Authority is to investigate the interest only mortgage sector, as they are concerned that consumers are not being sold suitable products. Their main concerns are when clients are offered interest only as a cheap option, but are not advised that a payment vehicle is needed to pay off the capital.
Our view
The problem with interest only mortgages is well documented with the endowment debacle. The problem is very simple both advisers and clients do not really explain or respectively understand the higher risk nature of a mortgage linked to investment performance. Doubling the risk links i.e. interest rates and investment performance means doubling the overall risk as we well know.
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