Mortgage brokers helped fuel risky lending during the boom years, according to a report by the Institute for Public Policy Research.
In Forever Blowing Bubbles? the IPPR says the securitisation model offered an incentive for lenders to undertake riskier lending because they could pass the risk on and brokers took advantage of this.
The report says: “Higher-risk lending was more prevalent in non-deposit-taking institutions. In the UK this may have been exacerbated by the dominance of brokers in the market. Intermediaries had a role in selecting from the booming array of mortgage products, but may also have played an important role in regulatory arbitrage finding the loosest lending for their clients.”
It says the result was that by 2007 the risk profile of the UK mortgage base had substantially worsened.
But Brian Pitt, managing director of Rockstead, says brokers should not be blamed for trying to do the best by their clients.
He says: “It is a broker’s job to recommend the best product for clients. Many did take advantage of deals on offer, but it is lenders that should be held accountable for not pricing risk correctly and not having proper rules in place.”
Pitt disagrees securitisation goes hand-in-hand with riskier lending. He says the model has been around since the 1980s and does not give lenders an advantage on pricing risk.
The report also claims the Mortgage Market Review is inadequate and does not go far enough in regulating the market. It wants mortgages capped at 90% LTV and lending a maximum of 3.5 x household income.