An IFA has attacked lenders in the sub-prime market and says those that earn higher fees from those in bad debts could be seen as immoral.
Harry Katz, principal at Norwest Consultants, says: “Bad debts are usually a cause for deep shame – and rightly so. Today our government actually encourages bad debts and bankruptcy by making it easier and trying to take the stigma away.
“The banks have been stupid and forsook the first rule of banking – don’t lend to those who are a bad risk. Now they are merely seeing sense. Trying to encourage sub-prime borrowing does no one any favours. Earning higher fees from those who already have solvency issues could even be classed as immoral.”
He says the higher fees for sub-prime business may be justified if the adviser actually places the business himself, but he believes there is no rationale when the broker puts the business through a packager, and although the packager may earn their crust, the same may not said of the adviser.
Katz goes on to say that he has never used a packager and doesn’t intend to.
He adds: “If the prospective client is hard to place it means he /she shouldn’t have the loan in the first place.”
Katz believes that from now on it is likely that only prime cases, will get a loan.
He adds: “When I took out my first, and only mortgage in 1968 wives’ income were not taken into account and you had to earn in a week what your repayment was per month. No such thing as interest only and you had to be a saver before they would even look at you. 90% LTV was the absolute maximum.”
Katz believes that the way forward is to only accept business from those clients that can afford the mortgage in the first instance.
Rachel Bancroft, managing director at KGB Packaging says that judging from Katz’s comments it seems that he would find it hard to help any clients that came to him that had credit problems.
She says: “Brokers don’t target customers or products that will earn them higher proc fees, but they work with the products that are out there. A broker may use a packager if they don’t know the market very well, or they don’t know what to do if they have a light adverse case. We always offer the client the best advice, and don’t always deal in the sub-prime market. I have never had one broker who has asked me which lender or which product offers the highest proc fees, brokers always work on rates.”
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