Role of non-banks must be recognised

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JOHN HERON, MANAGING DIRECTOR, PARAGON MORTGAGES

It was pleasing that the Treasury Select Committee recognised the role of non-banks in its report on the government’s proposals for reform of financial regulation.

The committee argues that insufficient attention has been paid to how the non-bank sector will be affected by the reforms.

Too often the sector has been an afterthought by regulators and politicians, despite the important role it plays in bringing choice to the mortgage market.

Non-banks once accounted for 20% of new lending in the mortgage market, but the closure of the wholesale funding markets meant this fell to less than 3%.

Non-banks were excluded from lending support schemes, while high street competitors benefited.

On the regulation front, non-banks are often lumped together despite the variety of business models in the sector and, because they tend to operate in the more innovative parts of the mortgage market, regulators may view them as risky.

A one size fits all approach is inappropriate and dangerous.

Paragon, for example, has arrears that are lower than the owner-occupier mortgage market and is a risk-averse lender.

Regulators need to understand the difference between mainstream lenders and non-banks and also the plethora of different lenders within the sector, and design regulatory solutions flexible enough to allow prudent lenders to expand and innovate while addressing weaker and less prudent models.