War and economic slump could force lenders to raise rates

Piers Williamson, chief executive of the Housing Finance Corporation, has warned the sector to be aware of the potential impact that global events will have on the business of some of its main lenders.

Speaking at the Future Housing conference in London on Tuesday, Williamson said: "It's not a single factor that would skew the market, but a series of events like the war and a drop in the housing market.

"Lenders would have to increase their margins and this would lead to much higher costs for RSLs. The unspoken rule of banks is that the good clients pay for the bad."

He added that a change in the administration of housing benefit or in the supervisory role of the Housing Corporation would raise the chance that "unexpected and over-riding factors could come out of left-field and drive costs up". RSLs should diversify their sources of funds to cover any rise in borrowing costs, he said.

He said the limited diversity of lenders worsened the problem facing RSLs. Just four funders – Bank of Scotland, Nationwide, Abbey National and Britannia – provide more than half the total private finance for the sector.

A series of events like the war and a drop in house prices would skew the lending market

Piers Williamson, chief executive, the Housing Finance Corporation

However, some associations remained optimistic about the market. Martin Robertson of Walsall Housing Group said: "There is still very lively competition among funders and rates are very good at the moment.

"A global downturn would be bad news but the onus is on RSLs to hedge their funding and take precautions as they would normally."

Peter Williams, deputy director general at the Council of Mortgage Lenders, said: "There are a number of factors coming together just now: the war, the economic downturn and the Housing Corporation's recent admission that the risk of insolvency in the sector is rising.