FSA Warning To Mortgage Lenders For A Difficult 2008
City watchdog the Financial Services Authority has warned mortgage lenders that 2008 is going to be even worse for mortgage providers and borrowers as the credit crunch takes an even firmer grip.
With 1.4m borrowers due to come off fixed rates in 2008, the forecast is for greater credit problems and repossessions, and the FSA has urged lenders to protect themselves and customers against the risk of a credit storm.
FSA retail managing director Clive Briault spelt out a warning to the annual conference of the Council of Mortgage Lenders with a double whammy on its way. That's the forecast of mortgage funding difficulties and 1.4m customers looking for deals to replace the cheap mortgage deals they've had for two years or more. His words will do nothing to ease the fears currently sweeping through the property market in the UK.
"There is a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks," said Mr Briault. He suggested that firms should be looking hard at their ability to survive should credit conditions get any worse, and to get ready to handle increasing numbers of arrears and repossessions. Lenders, said Mr Briault, should be looking at contingency plans for the worst case, and asked them not to all take a “one size fits all approach to arrears recovery."
Mr Briault stated: "We know that at least 1.4m short-term fixed rates will end in 2008. Many of these borrowers are on relatively high loan-to-value ratios or income multiples and will find it difficult (if not impossible) to refinance their mortgage on favourable terms, which will leave them facing a significantly higher interest rate on their mortgage, which may prove too much for many of them to afford."
Mr Briault said that there was an urgent need to improve procedures for arrears and repossessions, before increases in these areas got too high to manage.
It was apparent from his speech that the FSA is taking a tough stance on the problems affecting mortgage lenders, who have taken a battering from the funding crisis that has hit the money markets since the credit squeeze started in August this year.
The one-month Libor rate - the rate at which banks lend money to each other - reached its highest level for nine years at 6.72% earlier this week as banks became even more cautious as the festive season approaches.
The impact of the US sub-prime crisis caused the credit crunch around the world, and had the biggest effect on Northern Rock who had to go cap in hand to the Bank of England to keep them a float. Rock is still assessing bids to rescue it. Mr Briault noted that customers with saving above the £35,000 protection limit would very quickly move their funds at the sniff of problems, and that would cause even greater problems for lenders facing difficulties.
He said: "It would be prudent to assume that market conditions will remain very difficult for a sustained period. Against that background, the negative impact of any adverse macro-economic and credit shocks could be considerably magnified with consequences for the balance sheets of mortgage lenders. So there is a real prospect that conditions will worsen further."
Published on December 6, 2007
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