FSA slams UK sub-prime mortgage market [Telegraph]
By Ben Bland, Online City Reporter
Last Updated: 1:48am BST 05/07/2007
The Financial Services Authority has slammed sub-prime mortgage lenders and advisers in a damning new report which accuses them of failing in their responsibilities to vulnerable borrowers who already have high levels of debt.
Amid rising interest rates and increasing concern about the amount of debt borrowers are taking on, the financial watchdog also warned consumers that they could be prosecuted if they lie about how much they earn in order to secure a bigger mortgage than they can genuinely afford.
Sub-prime lenders offer loans to those with bad credit ratings or substantial personal debts but charge a hefty premium for this service. The sector is worth around £30bn or 8pc of the total UK mortgage market.
The FSA's review of 11 lenders, which represent more than half of the UK's sub-prime market, found that none of the firms "adequately covered" all of their responsible lending considerations in their policies.
In addition, many of these lenders were not even applying their own inadequate policies, with some companies failing to carry out basic checks on the plausibility of information supplied by their customers.
The FSA also discovered that almost half of sub-prime mortgage advisers were failing to adequately assess customers' suitability for a loan and that a third of advisers were not properly assessing whether their customers could afford to pay back the mortgage.
Clive Briault, the FSA's managing director of retail markets, said he was "very concerned" by the review's findings and warned sub-standard lenders and advisers that the FSA "will not hesitate to take action where we find bad practice".
He explained: "Consumers in the sub-prime market are vulnerable people who may have high debts or a bad credit history. It is therefore important that they are properly assessed and advised."
The FSA also discovered that more than 50pc of sub-prime customers had "self-certified" their income - a process meant for the self-employed - even though the vast majority are salaried employees.
This finding comes after recent research from the Institute of Payroll Professionals showed that an increasing number of websites are offering fake payslips, allowing consumers to potentially borrow more money than they can afford to pay back.
Mr Briault, warned that individuals could face prosecution for lieing about how much they earn.
"Consumers should not be tempted to inflate their salary, which is a criminal offence," he said.
Ray Boulger, a senior manager at John Charcol, an independent mortgage adviser, said: "It was particularly disappointing to note that over 50pc of sub-prime mortgages in the review had been arranged on a self-certified basis, a figure which is way in excess of what would appear in the mainstream market. As the FSA highlighted in the report, inflating income is a criminal offence and while there is no proof, one suspects that this may well have been the case in some, if not many instances."
The FSA has now referred five mortgage brokers to its enforcement division, including some firms whose failings were identified in a previous study in 2005 but who have failed to improve their practices.
Mr Briault also cautioned that "poor sales practices" could lead to "serious wider consequences".
He said: "The high level of sub-prime arrears in a benign market raises some important questions about the consideration given to affordability by lenders and intermediaries when undertaking this business. All mortgage firms must ensure they are treating their customers fairly by undertaking robust assessments of affordability and ensuring they have sound, and consistently applied, lending policies."
The Association of Mortgage Intermediaries, which represents 80pc of mortgage brokers in the UK, said it will respond to the FSA's report later today. |
