FSA Sub Prime Warning

FSA Sub Prime Warning

The FSA have warned again that the UK sub-prime market is showing signs of a downturn, mirroring similar recent market trends experienced in the USA.

The regulator uncovered poor practice by intermediaries and lenders within the market. As a result, it has started enforcement action against five intermediary firms.

Clive Briault, the FSA’s managing director of retail markets, speaking at the BSA Annual Conference in Bournemouth this week, underlined the warning. He stated that “the The last UK housing boom and bust at the end of the 1980s/early 1990s and the fall-out that we are currently witnessing in the US sub-prime mortgage market are indications of what could happen.”

This may have a knock on affect with other types of Commercial Mortgage and produce a slow down affect the whole market should be aware off.

Briault also highlighted that large increases in debt taken on by consumers (most of which is secured against residential and commercial property) have primarily been due to the favourable economic conditions.

Sub-prime mortgages are those sold to people with poor credit histories and thus a greater chance of defaulting. The FSA found examples of people being offered mortgage deals they might not be able to afford. The regulator said it was very concerned about its findings.
“Consumers in the sub-prime market are vulnerable people who may have high debts or a bad credit history. It is therefore important they are properly assessed and advised”
Briault said: "Consumers should make sure they understand the risks, costs and charges when taking out a sub-prime mortgage, particularly at a time when interest rates are rising. They should also not be tempted to inflate their salary, which is a criminal offence."
.Some policies contained unclear affordability or self-certification requirements. Also, some lenders approved mortgages which were potentially unaffordable. Putting more people at increasing risk of failing on repayments.

With this in mind, it’s very important that residential and commercial finance lenders make accurate assessments of the borrowers’ ability to afford the repayments. Particular care should be taken with the sub-prime market (http://www.generalfinancecentre.com/non_status.htm) where mortgage arrears are currently twenty times the rate of arrears on prime mortgages

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