The Financial Services Authority has raised concerns the move to higher income multiples on mortgages and a possible change in economic circumstances could result in more consumers falling into debt.
Speaking at the Mortgage Business Expo today, Clive Briault, managing director of retail markets at the FSA, says the regulator is "particularly concerned" about what its quality of advice processes work tells it about the approach to affordability in mortgage firms.
He states: "It is becoming clear that affordability is not being adequately discussed and assessed in an unacceptable number of firms. Indeed, in a worrying number of cases, affordability is not being discussed with customers at all."
He says both advisers and lenders have responsibilities to ensure mortgages are affordable and neither party can delegate responsibility to the other.
In another speech at the British Bankers’ Association’s (BBA) annual conference yesterday, Briault said the move towards higher income multiples on mortgages is prompting the regulator to ask whether lenders are appropriately stress-testing lending at such levels.
He raises concerns such lending may not be appropriately controlled to ensure lenders meet the affordability and other responsible lending requirements imposed by the FSA.
Briault points out the level of unsecured debt is extremely high and a small change in economic circumstances could result in a large increase in the number of consumers failing to meet their obligations.
He states: “Even if this is not in itself a significant threat to banks’ capital, it is a potential reputational risk to the industry.”
The FSA carried out work earlier this year which showed banks could make better use of their management information to proactively identify individuals who are starting to struggle.
In addition, it issued a letter to bank chief executives summarising current industry practice on stress-testing and saying the industry still has “some way to go”.
The FSA has produced online debt tests which it hopes will increase consumer awareness of the risks of over-extending themselves.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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