According to a new report by Standard & Poors, the number of borrowers classified as non-conforming and in arrears rose from 17 per cent to 23 per cent during 2006. The sector also saw repossessions treble, though the overall number of homes seized remained 1 per cent below the market level.
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Standard & Poors reported that the US non-conforming crisis could end up costing lenders up to $150 billion and that parallels could be drawn between the US and the UK. Andrew South, Standard & Poors’ credit analyst and author of the report predicted that non-conforming payments would suffer a ‘slow deterioration’ as rates rose in the future.
He said: “What we are interested in are those people who are coming out of their fixed rate periods into a higher interest rate market where there is the potential for payment shock.”
Clive Briault, managing director of retail markets at the FSA, stated: “The high level of non-conforming arrears also raises important questions about the extent to which lenders have taken affordability into account when undertaking this lending. High default rates should be prompting lenders to review their affordability models and to understand the root cause of high arrears.”
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Rob Clifford, chief executive of Mortgageforce, said: “I’m disappointed to see a rise. Lenders need to watch the trends carefully as if they continue, they will need to check their affordability models”
