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