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| Lenders 'must prepare for worst' | Lenders 'must prepare for worst' |
| (21 minutes later) | |
| UK mortgage lenders have been urged to assess and test their businesses against a possible worsening of conditions in global financial markets. | UK mortgage lenders have been urged to assess and test their businesses against a possible worsening of conditions in global financial markets. |
| The Financial Services Authority (FSA) said there was "a very real prospect" that conditions would worsen next year because of a global credit crunch. | The Financial Services Authority (FSA) said there was "a very real prospect" that conditions would worsen next year because of a global credit crunch. |
| That may make access to cash difficult - a problem that caused the run on Northern Rock earlier this year. | That may make access to cash difficult - a problem that caused the run on Northern Rock earlier this year. |
| The FSA warned that the UK mortgage market could be affected as a result. | The FSA warned that the UK mortgage market could be affected as a result. |
| Changing world | Changing world |
| Lenders needed contingency plans against the "worst outcomes", the City watchdog said. | Lenders needed contingency plans against the "worst outcomes", the City watchdog said. |
| "There is a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks," said Clive Briault, the FSA's retail managing director told the Council of Mortgage Lenders' annual conference. | "There is a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks," said Clive Briault, the FSA's retail managing director told the Council of Mortgage Lenders' annual conference. |
| He said that firms should be assessing their funding and liquidity positions, and testing whether or not their business models could withstand severe market problems and volatility. | He said that firms should be assessing their funding and liquidity positions, and testing whether or not their business models could withstand severe market problems and volatility. |
| They should also review and assess their medium and longer-term strategies and the options open to them, as well as considering contingency plans against the worst outcomes. | They should also review and assess their medium and longer-term strategies and the options open to them, as well as considering contingency plans against the worst outcomes. |
| "We want there to be a competitive and thriving mortgage market in the UK which clearly meets the needs of consumers," he continued. | "We want there to be a competitive and thriving mortgage market in the UK which clearly meets the needs of consumers," he continued. |
| Arrears and repossessions have increased significantly, albeit from a very low base Clive BriaultFSA | Arrears and repossessions have increased significantly, albeit from a very low base Clive BriaultFSA |
| Lenders should have tested business plans that take account of the changing world, with viable funding models, he said. | Lenders should have tested business plans that take account of the changing world, with viable funding models, he said. |
| Mr Briault added that firms needed boards and senior management that understood and knew how to operate in the best interests of their customers in a variety of market conditions. | Mr Briault added that firms needed boards and senior management that understood and knew how to operate in the best interests of their customers in a variety of market conditions. |
| Difficult refinancing | Difficult refinancing |
| The FSA estimates that more than 1.4 million borrowers on fixed-rate, short-term mortgages are due to come off their favourable terms next year, which were fixed when the Bank of England's main interest rate was lower. | The FSA estimates that more than 1.4 million borrowers on fixed-rate, short-term mortgages are due to come off their favourable terms next year, which were fixed when the Bank of England's main interest rate was lower. |
| Many of them will either have to pay higher interest rates as a result, or will go back to the market to find new deals. | Many of them will either have to pay higher interest rates as a result, or will go back to the market to find new deals. |
| Should they not find them, the resulting higher repayments could see them rein in consumer spending sharply. In some of the worst cases, this may even lead to a repossession of the property that has fallen into arrears. | Should they not find them, the resulting higher repayments could see them rein in consumer spending sharply. In some of the worst cases, this may even lead to a repossession of the property that has fallen into arrears. |
| Mr Briault explained that many of the borrowers were on relatively high loan-to-value ratios or income multiples and would find it difficult, if not impossible, to refinance their mortgage on favourable terms. | Mr Briault explained that many of the borrowers were on relatively high loan-to-value ratios or income multiples and would find it difficult, if not impossible, to refinance their mortgage on favourable terms. |
| At the bottom end of market, the so-called sub-prime sector that focused on people with poor or non-existent credit histories, many borrowers "may not have access to the market at any price". | At the bottom end of market, the so-called sub-prime sector that focused on people with poor or non-existent credit histories, many borrowers "may not have access to the market at any price". |
| Mr Briault added that despite the liquidity and credit risks it was important that lenders maintained their focus on treating customers fairly, including their treatment of customers in arrears. | |
| "Arrears and repossessions have increased significantly, albeit from a very low base and concentrated in specific sectors of the market," he said. | "Arrears and repossessions have increased significantly, albeit from a very low base and concentrated in specific sectors of the market," he said. |