Mortgage lenders have been warned by the FSA to batten down the hatches and brace for 'very difficult' market conditions next year as at least 1.4m homeowners face a sharp jump in loan repayments. Financial Times, Daily Telegraph, The Times
The FSA said that there was 'a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks'.
The bleak warning reflects growing concern about the stability of smaller mortgage lenders following the near collapse of Northern Rock, the slowdown in the housing market and rising lending rates between banks.
Clive Briault, the FSA’s managing director for retail markets, said lenders should assume that market conditions will remain 'very difficult for a sustained period'.
He said lenders should be prepared to rein in growth plans in order to preserve liquidity.
Briault added that bank efforts to raise more retail deposits would not necessarily protect them against a future squeeze.
According to FSA data, at least 1.4m borrowers are on short-term fixed rates that are due to end next year.
Briault said that many of these would face significantly higher interest payments 'which may prove too much for many of them to afford'. But he warned lenders against adopting a “one size fits all approach” to customers facing financial difficulty.