Speaking at the Council of Mortgage Lenders (CML) lunch, Clive Briault, managing director of retail markets at the FSA, admitted that lenders’ moves into other markets could cause a market shock. He explained: “Diversification is likely to increase rather than decrease risk. If you diversify away from prime mortgage lending into almost any other asset class, your credit risk is likely to increase.”
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With increased competition evident in the mortgage marketplace, Briault cautioned lenders entering into new market areas.
He added: “Lenders are, in some cases, taking on substantial risks through a combination of high loan-to-value ratios and high income ratios.
“Continued house price appreciation may be masking some severe difficulties in some sectors of the housing market.”
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Alex Hammond, PR manager at Kensington Mortgages, said: “It is right that the FSA recognises the differences between prime and non-conforming lenders. That is why there are a number of experienced specialist lenders who are able to deal with more complex circumstances.”
He added: “A lender’s job is to recognise the balance between risk and reward and to decide from this their course of action.”
