Threat of ban still hangs over some types of loans
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The Financial Services Authority has not ruled out a ban on certain types of loans such as high LTV, sub-prime and interest-only deals.
Speaking last week at a Council of Mortgage Lenders conference Lesley Titcomb, director of small firms at the FSA, told the audience the regulator plans to release a consultation paper next month in which it will reveal whether it feels there is a need to ban such products.
Titcomb says that most respondents to the FSA’s Mortgage Market Review have expressed the view that a ban on certain high LTV, interest-only and sub-prime loans would not be appropriate.
But she says: “Another approach could be to deal with loans that combine some high risk characteristics to form a toxic mix - for example, a loan that combines high LTV, interest-only and sub-prime.”
The regulator has been analysing 4.5 million loan transactions to see whether these products have particularly high arrears rates.
It was widely predicted that chancellor George Osborne would announce a cap on certain types of mortgages in a speech at London’s Mansion House last week.
Although he did not directly refer to such a cap he did reveal plans to create an independent Financial Policy Committee at the Bank of England which will have the power to take action on any issues that could threaten economic and financial stability.
Osborne says banks will also be restrained by higher capital and liquidity requirements.
This could mean they are forced to hold more capital if they wish to offer what the Bank deems to be risky products.
Robert Sinclair, director of the Association of Mortgage Intermediaries, says that after listening to Osborne and Bank governor Mervyn King’s speeches last week a cap on certain mortgage products could be on the horizon.
Sinclair says: “Reading between the lines I expect there to be some action on LTVs.”
In her speech, Titcomb also revealed that the FSA is looking to intervene in interest-only mortgages.
She says this is an example of irresponsible lending practices of the past coming back to bite the market.
The FSA will issue a consultation paper on responsible lending next month covering non-bank lenders, income verification, affordability, interest-only mortgages and toxic risk combinations.
Titcomb also says the FSA will extend its approved persons regime to bank advisers and not just mortgage brokers, as it had previously suggested.
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