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LONDON - Britain's financial watchdog accused lenders and brokers in the subprime mortgage market yesterday of not doing enough to check that customers can repay loans and warned poor practices could have wider repercussions.
Publishing the results of a review of Britain's subprime market, which lends to consumers with poor credit records, the Financial Services Authority (FSA) said it had started enforcement action against five unidentified firms as a result of the poor practices it uncovered.
"We are very concerned about these findings," said Clive Briault, the FSA's managing director of retail markets.
"The high level of subprime arrears in a benign market raises some important questions about the consideration given to affordability by lenders and intermediaries when undertaking this business." The regulator did not provide a figure for arrears.
Trouble in the US subprime market in past months has hit specialist lenders, retail banks and investment banks as US homeowners fall behind in mortgage payments, forcing dozens of firms out of business or into bankruptcy protection.
The turmoil has not spread to the UK market, where lenders have been less aggressive in their lending practices.
But against a background of rising interest rates and consumer debt, the FSA has said it will increase its focus on sectors of the mortgage market with greater risks, including lifetime mortgages and the subprime sector.
Annual lending in the UK subprime sector totals around £30 billion ($78 billion), according to estimates from independent mortgage adviser John Charcol, or around 8 per cent of the market.
- REUTERS
