FSA: Growing numbers to face debt problems in 2008
Growing numbers of Britons could face debt repayment problems in 2008, warns the Financial Services Authority (FSA).
The FSA's Financial Risk Outlook highlighting potential risks to consumers and financial institutions from "a significantly less benign economic environment" warns millions of homeowners may face a mortgage repayment shock of £210 a month.
Over 2008 1.4 million mortgage borrowers will come off fixed-rate deals bought when interest rates were lower but the switch to a lender's higher standard variable rates (SVRs) could add £210 to monthly mortgage bills.
The report states: "Consumers near the end of a fixed rate (or other product with a fixed term) will need to start planning early to be able to cope with the potential increase in the cost of these products."
The tightening of lending criteria could also hit making it harder for consumers to obtain loans.
"In addition to higher mortgage rates, many consumers are also faced with lenders lowering loan-to-value (LTV) ratios. There is a risk some consumers could find it increasingly difficult to obtain funding given the tightening of lending criteria and the reduction in the LTV ratios."
It adds: "A growing number of consumers are likely to experience debt repayment problems in 2008.
"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."
FSA chairman Callum McCarthy said: "To be clear, these are not firm predictions about what we think will actually happen but are a prudent attempt to highlight the risks that could impact consumers and firms in a less benign economy.
"Firms and consumers need to recognise there are both short and long term risks and should think about the implications."
Other risks facing UK financial institutions as the economy slows include: a greater risk of financial crime such as the 'rogue trader' losses faced by Societe Generale last week; a loss of confidence in banks and building societies; and a financial firm's business models being put under further strain.