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FCA concerned over rise in high-risk lending appetite

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  • 03/11/2016
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FCA concerned over rise in high-risk lending appetite
The regulator is concerned about a growing appetite among lenders and intermediaries to move into ‘high-risk’ sectors, as buy-to-let activity drops and the number of firms in the market outweighs the volume of business available.

Lynda Blackwell (pictured), mortgage sector manager at the Financial Conduct Authority (FCA), voiced the regulator’s worries at the Financial Services Expo (FSE) Midlands in Coventry.

Blackwell outlined how the FCA has recently analysed a number of product sectors it defines as higher risk and has seen a trend for increased activity in some specific areas, notably mortgages for the credit impaired, debt consolidation loans and Right to Buy.

She said: “At the moment credit risk standards are holding up. Risk taking is credible but we must all do our bit to make sure those strong credit practices are maintained and we do not repeat the mistakes of the past.”

Blackwell said buy to let appeared to have bounced back slightly but it seemed to be restricted to remortgaging. “Some commentators are saying it’s dropped by 30% and we’ve certainly seen a massive correction in the market since the end of quarter one,” she said. “Buy to let is not going to be the growth area it once was and firms will have to diversify.”

She suggested that intermediaries have a greater responsibility in product sectors where they account for the majority of sales, for example, intermediaries account for 68% of all credit impaired mortgage sales and 73% of debt consolidation loans. In terms of debt consolidation, Blackwell said: “Sales have been picking up recently from their 2010 low point and we are watching this very carefully. Intermediaries drive this business with 73% of sales and are therefore in a very responsible position.”

Overall, Blackwell said the intermediary market appeared to be in good health with a 66.3% share of total mortgage sale business – from a year-on-year perspective this was higher than at the peak of the market. However, this level of intermediated share was consistently higher for higher-risk product areas.

In terms of forthcoming challenges for the broker market, Blackwell highlighted the move towards Brexit as well as the potential impact of robo-advice. “Due to the High Court decision today, the uncertainty around Brexit is even greater,” she said. “No-one knows what will happen but firms still have to abide by UK/EU laws.”

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