The regulator’s 2008 Financial Risk Outlook states that mortgage intermediaries will be particularly at risk if a combination of pressure on house prices, tighter credit conditions, lower consumer confidence and high levels of personal debt cause a decline in the demand and supply of mortgages in 2008.
It says that due to a “significantly less benign” economic environment, a large minority of consumers could experience financial problems due to high levels of borrowing.
It says: “We are concerned that many consumers are ill-prepared for a deterioration in economic conditions and may have placed too much reliance on their ability to depend on cheap credit and housing wealth to sustain their consumption levels and investment plans.”
The outlook estimates that repayments for consumers coming off fixed rate mortgages in the next year will rise by £210 per month and says this will have a serious impact on the affordability of loans.
The FRO says: “As economic conditions deteriorate, we are likely to see an even greater increase in repossessions.”
FSA chairman Callum McCarthy says these are not firm predictions but are a prudent attempt to highlight the risks that could impact consumers and firms in a less benign economy.
He says: “Firms and consumers need to recognise there are both short and long term risks and should think about the implications.”