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Interest-only could be concern if markets tighten

Abbey says it will keep its interest-only mortgage book under close scrutiny in the coming months.

Deputy chief risk officer Iain Laing told delegates that its interest-only book is performing well but the situation might worsen in an environment of falling house prices and tighter credit conditions.

He said: “It is an area we have got under the microscope at the moment. We have to find a right way of managing it in the future.”

Laing said it will also focus on the large loan market. He said: “It is an important market to us but at the extremes – the very high loans to value – it is a very risky market. The large loan market is very pro-cyclic so at the risk of a downturn in the years ahead, we are tightening up.”

He said while Abbey is trying to protect its final accept rates in general, brokers will see low final accept rates at high LTVs.

He said: “We are not expecting dramatic changes. Even in my wildest dreams, I do not expect to take more than 15 per cent out of the business on last year’s business flows. We are a well capitalised and funded bank. The only problem we are facing is to service all the business you are giving us.”

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