PRA's Bailey warns UK lenders of return to potentially "fatal" high-risk property loans

The head of the Bank of England's Prudential Regulation Authority has warned of a dangerous shift by UK lenders back towards high-risk property loans.

Andrew Bailey, chief executive of the PRA, pointed to evidence that building societies had returned to making large loans compared with the value of a property and the customer’s income.

Speaking at the building societies’ annual conference in Harrogate, North Yorkshire, Bailey said the regulator was “watching this carefully” to ensure the mutual sector did not get sucked into risky loans to customers with poor credit histories or to buyers of commercial property, the Times reported.

Several building societies collapsed or had to be rescued during the financial crisis in 2008 as they sought to step up levels of high-risk lending to try and compete with the bigger banks.

“Lenders ventured into higher loan-to-value, sub-prime and commercial property lending without having adequate risk management," Bailey said.

"We also saw this in the late 1980s and early 1990s. This diversification was generally not successful and in some cases fatal.”