The sub-prime market and 100% LTV loans must come back for the housing market to recover, says industry PR guru John Wriglesworth.
Since the financial crisis, sub-prime mortgages have ceased to exist and 100% mortgages have significantly reduced in number.
Last year gross mortgage lending totalled around £140bn and the Association of Mortgage Intermediaries last week predicted gross lending would not exceed £135bn this year.
But Wriglesworth, chairman of financial services PR firm The Wriglesworth Consultancy and a former economist at Hometrack, says the market will recover when sub-prime and 100% LTV loans come back to the market.
Speaking at the Mortgage Business Expo last week, he told delegates: “Unless 100% LTV mortgages come back, you will not see a normal housing market. A healthy sub-prime market – real sub-prime, not near-prime – must come back and risk pricing should return too. If you want to lend 6 x income, charge 8%.”
But David Hollingworth, mortgage specialist at London & Country, says a recovery will not happen overnight and many lenders are not under pressure to offer riskier products because there is not enough demand.
He says: “Some specialist lenders have dipped into niche markets but this has been a gradual process and the near-prime offerings look different to the ones pre-2007. I doubt we will ever see a return to sub-prime as we knew it.”
He adds that before lenders start to focus their attention on 100% LTV deals, they need to improve their offerings at 90% and 95% LTV.
At the Expo Wriglesworth also questioned the motives of brokers selling discounted mortgages.
He told delegates: “Those selling two-year and other short-term discounted products are mis-selling because you’re exposing borrowers to interest rate fluctuation in two years’ time.”