The Financial Conduct Authority is closely monitoring what it views as increased risk-taking across the mortgage industry, its mortgage sector manager Lynda Blackwell warned today.
Speaking at the Association of Short Term Lenders Conference in London’s Painters’ Hall, Blackwell told the crowd to make sure borrowers are given a proper credit assessment.
She said: “We are starting to see, for example, LTVs on interest-only start to creep up. We are starting to see increasingly sub-prime lending and a growing tolerance of very poor payment histories; lending to the self-employed with accounts of one year or less.
“The uncertainty for us is just how far is this credit risk-taking likely to go?
“We don’t want to see a race to the bottom that we’ve seen in the past and this is something that we are continuing to monitor closely.”
She added: “The important thing is to remember to undertake proper affordability checks ensuring that loans are only granted for borrowers who can afford to repay.
“In your case [to the short-term lending sector] to ensure the borrower has a credible exit strategy to get out at the end of the term.”
Blackwell raised concerns about the number of loans used for credit impaired borrowers, which the FCA said makes up 2.7% of the market compared to 0.5% for the rest of the mortgage market.
She hinted that the regulator may take a closer look at the credit impaired section of the bridging sector.
Blackwell added: “Proportionally lending to the credit impaired is much higher in the bridging sector and it’s difficult for us to comment on this without taking a closer look at the facts on individual cases.
“We have cautioned in the past about using bridging finance to help repair a borrower’s credit status to be able to refinance onto a mainstream mortgage product unless the lender has evidence of a guaranteed offer.”