FSA: 'Very real prospect' of credit crunch worsening

Wednesday, 05 December 2007 12:00

Britons face the "very real prospect" that the credit crunch will worsen and start to bite, warned a senior figure at the Financial Services Authority (FSA).

Clive Briault, FSA retail managing director, told the Council of Mortgage Lenders (CML) annual conference last night the credit crunch could well hit consumers used to relatively cheap lending over recent years.

"Current and prospective market conditions also raise some important risks for consumers: if their financial plans depended on cheap and abundant credit, the absence of those conditions is likely to cause significant consumer stress," he said.

"There is a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks."

FSA figures show at least 1.4 million short-term fixed-rate mortgages will end in 2008.

Mr Briault warned many of these borrowers on relatively high loan-to-value ratios or income multiples and will "find it difficult - if not impossible - to refinance their mortgage on favourable terms, which will leave them facing a significantly higher interest rate on their borrowings, which may prove too much for many of them to afford".

He went on to call on lenders to comply with FSA rules on treating customers fairly - especially as levels of homeowners falling into arrears and repossessions grow.

"Arrears and repossessions have increased significantly, albeit from a very low base and concentrated in specific sectors of the market," Mr Briault said.

"Firms must have in place, and operate in accordance with, a written policy and procedures for dealing fairly with customers in arrears.

"A fairly consistent picture is emerging of some lenders across the market appearing to be unwilling to consider cases on an individual basis, unwilling to agree a solution tailored to the borrower's individual circumstances, and apparently adopting a one-size fits all approach to arrears recovery."

Responding to the speech, Citizens Advice called for "proactive regulation of bad practice" from the FSA.

"Lenders aren't currently doing all that they can to help borrowers in mortgage arrears, and this is evidenced in a report we will be publishing next week highlighting the need for robust and further regulation," said Sue Edwards, head of consumer policy at Citizens Advice.

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