Lynda Blackwell, mortgage sector manager at the Financial Conduct Authority (FCA), says the regulator believes credit risk standards within the mortgage market are “holding up” but is urging all stakeholders to “do their bit” when it comes to maintaining these levels.
Speaking at Thursday’s Financial Services Expo (FSE) Midlands, Blackwell said that the FCA was looking at a number of challenges that might impact on future growth in the market, in particular potential increases in business activity in high-risk product areas.
“At the moment credit risk standards are holding up,” she said. “Risk taking is credible but we must all do our bit to make sure those strong credit practices are maintained and we do not repeat the mistakes of the past.
“The market is still fairly subdued at the moment. Mortgage activity is still considerably below trend and we’re still dealing with the legacy issues of the past.”
Blackwell said the FCA was concerned about a growing appetite, from both lenders and intermediaries, to move into “high-risk sectors”, citing two specific reasons why this might occur, namely the number of lenders versus the volume of business available, and the fact that a drop in buy-to-let mortgage activity – due to Government and regulatory intervention – could force stakeholders into diversifying.
“Buy-to-let seems to have bounced back a bit recently but that seems to be on the remortgage side,” she said. “Some commentators are saying it’s dropped by 30% and we’ve certainly seen a massive correction in the market since the end of quarter one. Buy-to-let is not going to be the growth area it once was and firms will have to diversify.”
Blackwell outlined how the FCA has recently analysed a number of product sectors it defines as higher-risk and has seen a trend for increased activity in some specific areas, notably mortgages for the credit impaired, debt consolidation loans and right to buy.
She suggested that intermediaries have a greater responsibility in product sectors where they account for the majority of sales, for example, intermediaries account for 68% of all credit impaired mortgage sales and 73% of debt consolidation loans. In terms of debt consolidation, Blackwell said: “Sales have been picking up recently from their 2010 low point and we are watching this very carefully. Intermediaries drive this business with 73% of sales and are therefore in a very responsible position.”
Overall, Blackwell said the intermediary market appeared to be in good health with 66.3% share of total mortgage sale business – from a year-on-year perspective this was higher than at the peak of the market. However, this level of intermediated share was consistently higher for higher-risk product areas.
In terms of forthcoming challenges for the broker market, Blackwell highlighted the move towards Brexit as well as the potential impact of robo-advice. “Due to the High Court decision today, the uncertainty around Brexit is even greater,” she said. “No one knows what will happen but firms still have to abide by UK/EU laws.”
On robo-advice, she said: “There is a view that robo-advice will impact on intermediaries. We could get to a point where a machine could make an unbiased lending decision in a way that humans are not able to.”