Nationalised banks should be forced to offer sub-prime

19 May 2010 | By Natalie Thomas

A law firm wants to see the nationalised banks provide sub-prime mortgages, and says if necessary the government should force state-backed lenders to offer sub-prime deals.

Moore Blatch argues that using nationalised banks to offer sub-prime mortgages would give these borrowers access to the property market which they wouldn’t have otherwise.

The firm says that the number of those who would be classed as sub-prime is nearing one million. Based on data from the Council of Mortgage Lenders and the Bank of England it says that more than 50,000 consumers would have fallen into the sub-prime category in the first three months of the year, given the 16,000 bankruptcy petitions and almost 36,000 insolvencies that occurred in Q1.

Moore Blatch believes that many borrowers are being classed as sub-prime through factors out of their control, such as redundancy or loss of earnings.

The firm has also called for universal regulation to applied to credit providers and mortgage lenders, to avoid cases where applicants are turned down on an LTV basis only for the same applicants to get credit from inappropriate credit card or loan providers.

Paul Walshe, partner and head of lender services at Moore Blatch, says: “Unless the sub-prime market returns we will create a housing underclass, many of whom ended up there through inappropriate lending by credit providers who took no account of the possibility of future personal or broader economic conditions.”

Readers' comments (16)

Anonymous | 19 May 2010 11:58 am
Sub prime lending will return in some shape or form as soon as the money markets allow. Without securitisation there will be very little lending in the sector. Sub prime borrowers will become the underclass, with almost all lenders seeing them as untouchables. This creates a situation whereby their current lender, through no fault of their own hold the clients as prisoners in effect. The government need to focus on opening up the money markes rather than directly lend to sub prime. The appetite is undoubtedly there with many lenders rumoured to be keen to rejoin the market but being prevented from doing so due to funding issues. There is no way the government owned banks could offer sub prime deals, the public outcry would be enormous, with the potential for another Northern Rock style run on any bank who entertained the idea. The new so called government need to fix the liquidity problem, and fast before we will see any kind of sub prime industry re emerge
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Anonymous | 19 May 2010 2:59 pm
I agree with the need to fix the liquidity problem. However, I also agree with what moore Blatch is saying. There a many people within our own industry that have suffered financially some of whom would now be classed as sub prime, meaning it's no longer an issue that affects a group of borrowers that possibly should not have been encouraged into home ownership. With responsible lending including prudent underwriting I see know reason why our nationalised banks could not fulfil that role.
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Anonymous | 19 May 2010 3:23 pm
What a profoundly ignorant idea. Let's force the banks to do what got them into trouble in the first place. And while we're at it, how 'bout forcing them to lend 125% of the property value too?

Idiots. When will people learn that some folks just shouldn't be given credit?

When liquidity returns to the market, private-sector players with an appetite to play in the dirt will re-start sub-prime lending. In the meantime, clean up the balance sheets of state-owned banks, and sell them back to the private sector at a profit.
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Anonymous | 19 May 2010 3:27 pm
There is a very sinple solution to all of this, if the markets/banks used the policy of paying higher savings rates and then relent the money at a reasonable rate and at a reasonable risk. Securitisation would return, building homes would return, lending would return pensioners would have more disposable income and the economy as a whole will increase.
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Donald Fraser | 19 May 2010 3:32 pm
"Moore Blatch believes that many borrowers are being classed as sub-prime through factors out of their control, such as redundancy or loss of earnings."

A pity these people didn't have the foresight to take out appropriate insurance. Bet it was 'too expensive'.
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Anonymous | 19 May 2010 3:48 pm
Donald that is a lame view of the situation. I know of people in the mortgage industry who went from earning 60k to no job for 12 months and now earn 20k. Which insurance do you know of that would pik up the tab for the car, cards, loans, etc that went with the job? Covering mortgage and essentials I agree but not everything is insurable, regardless of cost
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Anonymous | 19 May 2010 4:08 pm
Although this article seems controversial at first, the theory of it makes sense. As mentioned previously there is still a massive issue with liquidity and until the securitisation market begins to function again the situation will remain pretty much as it is. However lets look from a different angle. The banks being suggested were never actually advertising themselves as sub prime lenders. Yes they allowed levels of adverse through but never actually priced for the risk meaning a squeaky clean client paid the same rate as somebody with a CCJ and/or default. This in itself was not necessarily a big issue, but when the banks bought mortgage books they were often buying heavy sub prime on which they would never have lent themselves. Now that the sub prime mortgage market has ground to a halt there is a massive market waiting to be tapped with nobody expecting a return to the old ways. This means sub prime will be priced as such, with a risk based pricing scale. No longer will a sub prime deal be broken up and sold on with AAA as investors are wise. This would allow a lender to make sensible decisions with sensible returns. Somebody will make a fortune if they dare to do it, why not the state owned banks. Transparency is the key to it all. We can call sub prime whatever we like, but at the end of the day 'If it barks like a dog, it is as a dog' The public may well be sceptical but if it is done right there will be no more risk than any other mortgage but with the potential for far higher returns. If the government would back it up with an underwritten MIG scheme then we could see the housing market on the up, with the knock on effects to the economy as a whole blatantly obvious.
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Donald Fraser | 19 May 2010 4:28 pm
Anonymous. I don't recall seeing any mortgage industry job adverts over the years that came with (presume you mean loan for) car, cards, loans etc'. Those are personal choices and debts that would have been insurable against redundancy and consequent loss of income. i.e. the subject of my original comment which I stand by.
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Tony Bullock | 19 May 2010 5:23 pm
Well said Donald. And well done for putting your name to yor comments, unlike all these other anonymous comments.

However, I would like to add that if a financial adviser cannot insure himself against a downturn, and during a boom can't even manage to save a few pennies of his "£60k" annual income for a rainy day, what good is his advice to the man in the street? I say the industry's better off without these incompetents and good riddance to them.
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Anonymous | 20 May 2010 9:06 am
Who mentioned any financial adviser? there are plenty of people involved in the industry who do not offer advice.
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