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Sub-prime faces regulatory flak

A recent speech by the FSA’s Clive Briault shows sub-prime is firmly on the regulator’s radar. Hold on to your hats as it could be a bumpy ride, says Rob Griffiths

There’s a degree of inevitability about the debate surrounding the sub-prime market. Ever since Mortgage Day, it’s been obvious that the Financial Services Authority would look closely at this sector and this has proved to be the case.

A few weeks ago, Clive Briault, managing director of re-tail markets at the regulator, made a speech at the Building Societies Association’s annual conference that focussed on the vulnerability of sub-prime borrowers.

There’s no doubt that sub-prime has developed and ex-panded dramatically over the past few years. Arguably, sub-prime lenders have pioneered many of the developments that have now become the norm in the industry, particularly in the technological sphere.

However, Briault used his speech to sound a word of warn-ing to sub-prime lenders. Indeed, he seemed to suggest that a number of new lenders weren’t taking account of the sector’s risks and were lending irresponsibly. He also spoke of a lack of specialist experience in some lenders and wondered whether they were equipped to work in the sector.

If Briault wanted his comments to make an impression, he succeeded. Matthew Wyles, group development director at Portman, jumped into the debate, predicting the collapse of a number of new sub-prime lenders. Wyles thinks the sec- uritisation model that many entrants have adopted is built on sand. He believes that if the market suffers a shock, in-vestors won’t want to buy mortgage-backed securities.

Enter edeus chief executive Michael Bolton, who slam-med Wyles’ comments. Bolton said the market was already priced for a worsening credit situation and wondered if some- one high up in another lender should be making these comments about a different section of the industry.

So should we be concerned about sub-prime? Clearly the FSA feels the need to draw attention to the situation and points to the fact that sub-prime arrears are running at 20 times the rate seen in prime mortgages, even in a relatively benign economic environment.

In a way, the FSA is telling lenders not just how to do their jobs, but is also suggesting that some of them are way off the mark in the way they are approaching the sub-prime market. It also says it will closely scrutinise lenders’ stress-testing results and the risks they are taking.

I get the feeling that Briault’s speech marks a new stage for the regulator in its dealings with the sub-prime arena. It could be time to hold on to your hats.

The minefield of mates mortgages
Nowadays, buying your first property is the financial equivalent of winning BBC’s The Apprentice. You might be drop dead shrewd, but it seems that unless you’ve got buckets of cash, you’ve no chance.

I wrote a couple of weeks ago about the bank of mum and dad, but what’s the alternative if parents don’t have the resources to help their kids? Increasingly, potential borrowers are grouping together to buy property and we’ve seen ‘mates mortgages’ become popular.

But there are hidden dangers here. Moneynet.co.uk has warned groups of friends buying together to make sure everyone’s credit profiles are clean, otherwise one adverse credit record could tar the whole group.

I’ve always thought that entering into this sort of agreement was a potential minefield anyway, and if any section of society needs the advice of brokers, it’s mates.

Who knows what sort of trouble may be lurking around the corner if one mate misses their mortgage payments or decides to walk away.

As house prices continue to soar, it’s understandable that 20-somethings will think it’s now or never. But mates mortgages need thought and commitment.

It’s not something I would have considered with the friends I used to rent with, but then again I didn’t trust them with the house keys, let alone a mortgage.


I have a dirty mind
Is it just me or does the word ‘mates’ conjure up an image of something quite different to mortgages?


The Apprentice turns the clock back
Talking of The Apprentice, the third series finished recently, so I’ll have to find something else to do on Wednesdays.

When the series started, the financial advisory community had one of its own to support, Jadine Johnson. Well, she works in a bank, but close enough.

She seemed to be getting it right until she committed the cardinal sin of The Apprentice – showing her feelings. Johnson missed her daughter, got upset and missed a meeting. In the bad old days, this would have been a sackable offence.

And lo and behold, Jadine got the boot. How would the Financial Services Authority view Johnson’s treatment? I know Amstrad isn’t an FSA-regulated

firm and technically she didn’t work for not so sweet Sugar, but let’s forget these trifling concerns.

Should bosses be allowed to get away with such behaviour? Yes, business is tough, but we’re told that employees are the lifeblood of all firms and their concerns should be listened to. The workplace should treat people like people, not machines, and a little consideration can go a long way.

But Simon Ambrose deserved to win. That boy can breakdance.

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