Abbey takes on mortgage risk

Despite widespread warnings of a house price collapse, Abbey National, one of the biggest mortgage lenders, has stopped taking out insurance to protect itself against the risks it runs with customers who borrow a high proportion of the cost of their property.

The bank insists the change, revealed in its most recent accounts, does not increase its exposure to bad debts. But it has raised eyebrows in the City, where there are growing fears about a sharp correction in the housing market. John Paul Crutchley, banking analyst with Merrill Lynch, said; 'If there is a 1992-style collapse in the housing market, the risk was laid off but is now on the balance sheet.'

Until the end of last year, Abbey took Mortgage Indemnity Guarantee (MIG) insurance from Carfax, an insurance company set up for this purpose in the early 1990s.

From 1 January, Abbey has decided not to insure with Carfax. It still charges a fee to customers who borrow more than 90 per cent of the value of their property. But instead of using this to buy insurance, it takes the fees to its profit and loss account, spread over the expected term of the mortgage.