FSA indicates plausible scenario to assume property prices fall by 40 per cent and that 35 per cent of mortgages in default.

November 17, 2006 admin United Kingdom Economy Comments Off on FSA indicates plausible scenario to assume property prices fall by 40 per cent and that 35 per cent of mortgages in default.

Nothing like doing a bit of planning. The Financial Services Authority in the UK is suggesting some financial institutions are complacent and not adequately modeling risks. It suggests an

“appropriate” benchmark was to assume property prices fell by 40 per cent and that 35 per cent of mortgages in default ended with homes being re-possessed.

The FSA believes this could be a plausible scenario, and they are probably right given the size of the boom.

  • UK: Banks told to predict effects of a 40% crash in house prices – Times Online, November 16th, 2006.
    BANKS in the UK have been ordered by financial regulators to assess how they would cope in the event of house prices crashing by 40 per cent. The instruction to include a housing slump scenario in their stress-testing models comes after the Financial Services Authority found…