In an interview with the Guardian, the chief of the body that runs Northern Rock Asset Management and Bradford & Bingley’s mortgage books also said that Britain is facing a tsunami of repossessions as soon as interest rates start to rise.
Banks says that the government’s policy at the beginning of the financial crisis to urge lenders to use forbearance and keep people in their homes is forcing some homeowners further into debt.
He told the Guardian: “We as an industry, as a kneejerk reaction in the emergence of the crisis and because the government asked us to be forbearing to customers in the hope it would all go away, we have been too lenient with some customers.
“It’s a tough love approach. It’s treating customers fairly, not nicely, because if you can’t afford your mortgage you are only increasing your indebtedness.
“If we allow you to increase your indebtedness, that’s not really fair to you.”
Banks adds that the number of people falling into arrears could be scary if lenders fail to prepare for base rate increases.
He says: “You can see if you don’t do something about it, you can see a tsunami. If you don’t get into the hills you could get drowned by this. If you don’t manage this properly it could get very messy.”