MMR: FSA reveals the number one toxic product combination

13 July 2010 | By Robert Thickett

A whopping 42% of borrowers with a credit impaired, self-cert mortgage for debt consolidation at 80% LTV or above are in arrears or repossession, making it the most toxic product combination in the UK.

In its Responsible Lending paper out today the Financial Services Authority has analysed toxic product combinations for which it found the greatest proportion of borrowers in arrears or in repossession.

For straight credit impaired, the FSA says that just 21% of borrowers are either in arrears or repossessed.

But as other product combinations are added to credit impaired, from debt consolidation to a high LTV and Right to Buy, the percentage of borrowers in arrears or repossessed quickly starts to rise. The top two worst products have four toxic combinations, with arrears levels over 40%.

The FSA says: “Our findings show that the dominant characteristic present in all of the highest-risk lending combinations is whether the borrower has an impaired credit history.”

It says it could ban some or all the products but it describes an outright ban as too blunt an approach and that it would fail to distinguish between those borrowers who will and those who will not repay and would unfairly penalise some consumers.

Instead it has proposed an income buffer for all credit-impaired borrowers.

Readers' comments (5)

Danny Lovey | 13 Jul 2010 9:04 am
Whilst I still need time to plough through 185 pages of the new MMR consultation document, I do not think I need to be a rocket scientist to work out that 'A whopping 42% of borrowers with a credit impaired, self-cert mortgage for debt consolidation at 80% LTV or above are in arrears or repossession, making it the most toxic product combination in the UK'
The lenders priced their risk accordingly in the price paid for the product,wisely or otherwisely.
Prime lending that was cheaper obviously did not have the same level of pricing or risk or outcome. The FSA stating the obvious that we all know I would suggest and not a great revelation
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Peter Turner | 13 Jul 2010 10:22 am
Wow!

What next? A revelation that the Pope is Catholic?
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Anonymous | 14 Jul 2010 10:56 am
I'm sorry but this is hilarious...It's taken nearly 6 years for them to work this one out! The one fact missed off the list is that the interest rates being charged on these loans were extremely high due to the risk the Lenders were taking...who were big high street names hiding behind other trading names. THE WORLD'S GONE MAD.
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Laurie Grais | 15 Jul 2010 9:05 am
I'm Amazed the FSA came to a conclusion that everyone knew 6 years ago,direct your attention to some other facit of financial services (Banking Practise may i suggest) the ability of the banks to justify the sale of poorly constructed, expensive plans sold by badly trained salesman to people who are brow beaten and blackmailed into taking out plans on loans protecting & accounts that pay low interest and being charged usery rates.
To my mind this would be TREATING THE CUSTOMER FAIRLY the witch hunt they are currently engaged on,
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Anonymous | 15 Jul 2010 9:30 am
Can anyone tell me which lenders are still lending on any of these toxic elements? Why doesn't the FSA deal with the current market instead of picking over historical issues and start protecting todays consumer instead of their salaries. How can they be so out of touch?
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