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Lenders pushing ‘risk envelope’ on notice from FCA – Genworth

by: Simon Crone
  • 13/11/2014
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Lenders pushing ‘risk envelope’ on notice from FCA – Genworth
It was interesting to read the thoughts of the FCA's Lynda Blackwell on lender risk recently.

The regulator’s mortgage representative was expressing concern that, in a post-MMR world, some smaller lenders may be rushing too fast up the risk curve in order to secure market share.

Blackwell cited a number of potential product areas within which some lenders may be prepared to push the risk envelope in order to gain business. These included interest-only loans, mortgages for the self-employed, bridging and debt consolidation.

Now, as Blackwell herself pointed out, there is “nothing inherently wrong” with these products themselves but I suspect the FCA is already seeing some evidence to suggest a more lax approach to risk from some lenders active in these sectors.

The competitive reality of lending in today’s mortgage marketplace means that some lenders are simply unable to compete with the big lenders for prime, residential, low LTV business.

While the low LTV residential space is a tough nut to crack, this is not necessarily the case in the high LTV market. And it is here again where the smaller lenders can make a real difference without having to appear on the FCA’s risk radar.

We have seen the impetus provided to the high LTV market by the Govermment’s Help to Buy scheme but those lenders operating outside the parameters of the scheme are also continuing to deliver. And the fact they are utilising mortgage insurance as their credit risk mitigant of choice shows the responsible nature of their lending and the seriousness they place on delivering in this area.

So, while the FCA might have its eyes on so-called niche product areas where lenders could move up the risk curve, there might also be a focus on the continued modus operandi of some lenders to offer higher LTV products without the use of, for example, mortgage insurance.

There is as much risk here (if not a lot more) than those smaller lenders who are, for the most part, completing relatively small levels of business in the niches mentioned.

Simon Crone is vice president, Mortgage Insurance Europe at Genworth

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