Despite this there are still negative perceptions held by industry insiders and the public. Changing these is not easy but brokers and lenders must work together to make sure they do not form a barrier to innovation or the realisation of the sector’s potential.Some people still see the sector as risky, which is unfair. It is true that it has a higher default rate that the prime sector but only marginally higher – most borrowers experience few or no problems with repayment. Lenders are able to take account of the extra risks associated with individual borrowers by setting higher interest rates. The risk management techniques available to lenders have become highly sophisticated, particularly those associated with the capital markets and underwriting such as affordability calculations. Again, these allow lenders to reduce their risk exposure. Other incorrect perceptions surround the sort of people who require these mortgages and particularly those taking out sub-prime deals. There are negative connotations to the label sub-prime. It suggests clients are unable to manage their finances properly, are earning less money, have considerable debts already or have other issues that mean repayment is tough. These are largely unwarranted. Only a small minority of sub-prime clients fall into difficulties with repayments. After all, there is no incentive for lenders to take on borrowers who can’t afford mortgages. Most sub-prime clients have reasons for their credit problems such as divorce or unemployment, from which they have since recovered. And it is not true that sub-prime customers are generally poorer than their prime counterparts. Some of these incorrect perceptions can be blamed on the awful names the sector has accrued. First we have ‘sub-prime’ – a phrase that suggests the sector is in some way inferior. Then there is ‘non-conforming’, which I have used here but which suggests something odd. Perhaps ‘specialist’ or ‘credit repair’ should be more widely used. That might help the sector gain a rightful reputation as a source of inclusivness and innovation within the mortgage industry.
- Top trends
Skipton has launched a three-year base rate tracker capped mortgage at 4.75% which is equivalent to initial monthly payments of 569 for a 100,000 repayment mortgage over a 25-year term.John Goodfellow, chief executive at Skipton, says: We are continually developing our extensive range of great mortgages and this one definitely ticks all the boxes with […]
West Brom for Intermediaries, the specialist intermediary lending arm of the West Bromwich, has presented Robin Mazumder of Blue Horse Finance in Sutton Coldfield, with an iPod MP3 player. Mazumder was amongst the first brokers to submit an application to West Brom for Intermediaries via its recently launched website www.westbromforintermediaries.co.uk. Although Mazumder pressed his submit […]
Estate agency network Sequence has appointed David Plumtree to the newly created role of operations director.
GMAC-RFC has revealed that since launching a year ago for directly submitted business with Openwork it has surpassed 775m in applications. These results place Openwork amongst GMAC-RFCs top four mortgage distributors.Within the 12 months that GMAC-RFC has been working with Openwork, it has already climbed up Openworks league of lenders in terms of completions, with […]
Do macro headlines create white noise which impacts market prices? Portfolio Manager at Harris Associates, David Herro, discusses how market volatility can create opportunities to buy good business at a discount.
News and expert analysis straight to your inboxSign up