In its first Retail Conduct Risk Outlook, the FSA states mortgage arrears peaked in mid-2009 at levels less than half of those seen in the early 1990s, but there is still a tail of poor quality pre-crisis lending.
Among this group of distressed borrowers, there is a danger the scale of potential arrears problems is being masked by the extensive use of forbearance strategies, the regulator says, noting these can appear attractive to both borrowers and lenders when interest rates are low.
The RCRO states the use of forbearance strategies highlights the vulnerability of certain customer segments, which could become widespread if unemployment or interest rates rise in the near future.
The report examines the ways in which a number of current, emerging and potential risks might impact upon consumers, and is part of the FSA’s consumer protection strategy to identify and intervene with risks earlier.
Adair Turner, chairman of the FSA, says: “The RCRO informs our dialogue with firms and consumer representatives on conduct risk and will play an essential part in our work to mitigate the potential risks to customers in the future.
“It analyses how environmental trends may influence how firms treat their customers, and assesses the resulting potential for poor customer outcomes.”