It's official: the age of the cut-price loan is over, says FSA chief

Cheap borrowing is a thing of the past, the Financial Services Authority (FSA) has said.

Speaking last week, Hector Sants, the City regulator's chief executive, said the sub-prime crisis had changed attitudes to lending. UK banks, he added, would now be looking to form more traditional relationships with their customers rather than lending at low rates of interest and investing in complex financial products.

"I don't think markets are ever going to return to where they were," Mr Sants said in an interview with the BBC. "The idea that at some point they will go back to normal is, I think, [mistaken]. The new normal will be different from the way markets behaved in the past."

Acknowledging shortcomings by the FSA in the Northern Rock debacle, he added: "Banks need to give consideration to how their business models will need to adapt to the changed market circumstances. They will need to treat their customers fairly with these arguably more difficult times in prospect."

Banks, he said, would no longer lend money and then package the loans and sell them to a third party to minimise the risk, as was common before the credit crisis began. As they are now holding more risk themselves, they are likely to be cautious when lending to consumers.