The FSA’s ‘Financial Risks Outlook’ report sounded the alarm for mortgage affordability, with mortgage approvals set to ‘slow sharply’ in the coming months while repossessions would rise in response to tough market conditions.
The report identified that consumer risks had increased with the combination of high loan-to-values, high income multiples and high loan amounts. Borrowers fitting all three categories face increased strain on affordability and risk defaulting on loans.
An estimated 1.4 million short-term fixed rates will mature in the next 12 months. The FSA warned that these consumers could face increases in mortgage repayments of up to £210 per month with the rise in interest rates if these fixed rates were replaced by standard variable rates.
The FSA added that the mortgage intermediary market would be at particular risk from a downturn in mortgage demand through such issues as pressure on house prices, tighter credit conditions, and lower consumer confidence.
Jonathan Cornell, managing director at Hamptons Mortgages, commented: “I would propose a certain degree of caution in reading this report too literally. While over a third of all mortgages sold between April 2005 and September 2007 might fall into two or more of these categories, not all will be at risk.
Cornell added: “The majority of risk lies with the heavy non-conforming side of the mortgage market. I would not be surprised if a number of these borrowers do face difficulties this year, but the regulator paints a bleak picture by suggesting all borrowers falling into their three ‘risk’ categories will struggle; a suggestion which is unnecessary in the present climate.”
