That’s the message from Fitch Ratings, who believed that while there may be some issues in the long-term for some smaller lenders, the outlook for the lending market remained positive.
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Alexandre Birry, associate director of financial institutions at Fitch Ratings, commented: “The outlook for mortgage lenders is stable based on a very favourable credit environment. We may expect to see some small deteriorations but as risk is so low at the minute, the only way for this to go is up.”
Birry admitted there were some long-term concerns over monoline lenders, such as smaller building societies, who would need to change their business models as they could soon be faced with the dilemma of not creating enough business to promote asset growth in a tougher environment.
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This type of lender, as with all lenders in the market, would be faced with three strategies to expand growth: creating an economy of scale through mergers, increasing income by having less reliance on margins, or moving into higher risk areas.
Birry added: “The most popular method recently has been to climb up the risk levels by offering more risky or specialist products. However, it is hard to gauge how much risk there is involved as many of these specialist areas have not operated in an environment of higher rates and falling prices.”
Rachel Snow, head of external affairs at the Building Societies Assocaition, believed: “Everyone in the market has enjoyed a benign economic environment and strong growth so everyone needs to make sure their business models can cope going forward. It’s also important to remember many of these building societies are regional so applying national solutions to these regional outlets doesn’t appreciate their strong reputations in the local market.”
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