BSA 2019: PRA eyeing risky lending ‘like a hawk’

Ryan Bembridge

May 24, 2019

The Prudential Regulation Authority has noticed lenders going up the risk curve and should watch them ‘like a hawk’, its chief executive Sam Woods warned.

He added that ring fencing rules, separating lenders’ investment arms from their banking activities, has intensified pressure on the mortgage market.

Woods said: “As all borrowers and lenders are well aware, we have seen something of a price war in the mortgage market over the last couple of years.

“This may be good news if you are  for instance  a young supervisor in the PRA looking to buy your first property.

“But it is less good news if you are a lender concentrated in mortgages, given the impact on net interest margins.

“The response of such lenders has been entirely unsurprising – a material move up the risk curve.”

This move up the risk curve is clear owing to a number of factors, he added, including a shift towards high loan-to-value and high loan-to-income lending.

Woods added: “Now, it may be that these shifts are well within firms’ management capabilities, and they should be well captured by our capital framework.

“But we should be watching them like a hawk.”

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