Broker levels in boom years were unsustainable

2 December 2008

Jon Pain, retail markets managing director at the FSA, made the announcement at the Council of Mortgage Lenders’ annual conference today.

Talking about specialist lending, Pain says that high LTV loans, self-cert mortgages and a focus on high growth and high risk sub-prime meant that some lenders lost sight of the risks they were taking.

Like the unsustainable levels of brokers seen, he says the market has seen much of this lending now unravel.

He says: “Mortgage approvals are falling, with lenders concentrating their efforts on securing the lowest-risk borrowers, and the number of brokers is falling.

“The lending market is now wholly dominated by probably six large, balance sheet lenders. And with the recent pass through of the Northern Rock Granite structure, we are unlikely to see any early, restoration of securitisation markets.”

Looking to the future, Pain says that some of the difficult questions facing the market were what sort of market should emerge going forward, although he did say it would be unlikely to “be anything like the recent past”.

But he said for the time being it was not the place for the FSA to answer questions about whether self-cert or high LTV loans should be banned.

He adds: “I believe we have a market with the CML that is willing to take an open mind and collaborate with us, learning from the past, and making sure that we get a more sustainable market in the future.

“Where lenders have adequate liquidity, funding and capital; strong systems, customers enjoy the benefits of a vibrant market but are not exposed to unnecessary risk.”

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