Mortgage brokers helped drive risky lending during the boom years, revealed a report by the Institute for Public Policy Research (IPPR).
The IPPR noted that the securitisation model provided an incentive for lenders to engage in riskier lending.
“Higher-risk lending was more prevalent in non-deposit-taking institutions. In the UK this may have been exacerbated by the dominance of brokers in the market,” the report said.
“Intermediaries had a role in selecting from the booming array of mortgage products, but may also have played an important role in regulatory arbitrage finding the loosest lending for their clients.”
It also revealed that the result was a risk profile of the UK mortgage base, which had substantially worsened in 2007.
However, Brian Pitt, Managing Director of Rockstead, noted that the public should not blame the brokers for doing its best for their clients.
“It is a broker’s job to recommend the best product for clients. Many did take advantage of deals on offer, but it is lenders that should be held accountable for not pricing risk correctly and not having proper rules in place,” he said.
Mr. Pitt also noted that securitisation works hand-in-hand with riskier lending. He believed that the model has been present since the 1980s, which did not provide lenders an advantage on pricing risk.
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