Restricting criteria is not the answer

The debt adviser believes that although irresponsible lending criteria with unsustainably high LTVs and income multiples have left many people in debt, restricting lending criteria in the future will not happen.

Andy Moody, managing director of TCF Debt Solutions, believes that Lord Turner is right to question the culture that allowed unsustainable LTVs and multiples which drew the vulnerable into debt and lenders involved in catastrophic losses, but common sense dictates that lenders themselves, after the massive losses that have been sustained, will not allow history to repeat itself.

He said “The review undertaken by Lord Turner naturally had to query the aggressive marketing of higher and higher LTVs and larger and larger income multiples. At TCF Debt Solutions we are dealing every day with the consequences of customers who have been exposed to the temptation of overreaching themselves and ended in massive debt and the danger of losing their property. But it is clear he has seen the dangers of heavy handed kneejerk reaction through statutory restrictions.

“I think that the FSA will more likely aim to ensure that the volume of lending is sensibly regulated by factoring in the reserves that banks will have to carry in the future to deal with potential bad risks and bad patches in the economic cycle and by making access to wholesale funding more demanding. This in turn will dictate the volume of funds available for lending does not get to a point that leads to the erosion of sensible risk management in the search for greater market share.

“Clearly we cannot go back to a situation that puts customers into danger of default and repossession because of unhealthily easy access to funds that they will struggle to repay but lenders need to be able to assess customers according to their individual circumstances and not just based on a rigid slide rule approach.”