“Buy to let insurance: new FSA plans – 1st October 2010″

A new proposal about the future of interest-only mortgages has sparked debate from experts, which people with landlord insurance will be interested in.

The suggestion from the Financial Services Authority (FSA) is that lenders should check the validity of their customers’ repayments methods at the start of a mortgage and periodically throughout its lifespan.

This may put off some landlords with buy to let insurance investing in new property as, if the new rules came in, they would be checked up on by their mortgage provider for their ability to pay.

However, it may also encourage more people to stay in rented accommodation.

The Building Societies’ Association’s (BSA) Paul Broadhead fears that this move will stifle the market, whilst the Council of Mortgage Lenders (CML) goes even further, believing that if the proposals continue as they are, the interest-only market will “effectively vanish”.

Mr Broadhead continues, noting that “lenders have a responsibility to make clear to borrowers the risks of interest only mortgages and to stress the need for a repayment method, but the FSA should avoid creating a moral hazard where customers take less interest in the performance of their finances in the mistaken belief that lenders are doing it for them.”

With the housing market still struggling after the recession, any extra reason for those with let property insurance not to invest in further properties, any further disincentive could keep the market in the doldrums for some time to come.

The CML believes that the costs involved in carrying out the scheme as it currently stands would be “prohibitive” and notes that “the number of borrowers with a shortfall at the end of their term is extremely low, [so] lenders do not see significant losses interest-only mortgages, meaning that the majority of borrowers’ repayment methods work.”

However, as interest-only mortgages generally appeal to those who would otherwise be renting accommodation, those with landlord insurance may actually benefit from the proposal, if it comes in unchanged.

This could see a continuation of the current trend, which has seen fewer people choose to take on a mortgage, according to the Bank of England’s most recent figures.

Analysts suggest that this is because of high unemployment, job uncertainty and low consumer confidence, so if the new interest-only ideas were brought in, this would further heighten consumer anxiety about buying a home.

Talk with one of the professional advisors at Rentguard today or apply online for an instant landlord insurance quote, immediate cover and swift delivery of your documentation.

Source: Rentguard

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