Complex Prime - two words being used much more (again) in recent times and ones which I suspect will be used a lot more moving forward.
So, first and foremost let’s nail the myth. Complex prime is not sub-prime. It is what it says on the tin – complex and prime.
What do I mean by complex?
Take a client whose income is made up of a number of differing strands and which might include employed PAYE, trust income, a second job and, perhaps, investment income too.
Or, a customer who needs a cross collateral charge on another property and parental support. That’s complex!
Or, a customer who, on an income stretch, is willing to deposit two years mortgage payments up-front to the lender to give them comfort. That’s complex! The list goes on and, basically, whatever the requirement, if it is a good sound case, and you can prove affordability, it may well fit the Complex part.
What do I mean by Prime? Well this part is simple. It is an applicant who, on their credit file, has not missed a heartbeat!
Complex Prime is not a new phenomenon.
Back in the 90’s, before the advent of current credit scoring mentality, this was a thriving business model. Think back to the good old days and imagine a lenders underwriter studying the whole picture, warts and all, and then deciding whether to lend or not? More importantly, once their decision was made, they stuck to it and did not keep changing the goalposts. Those were heady days….
In reality though, we have simply gone full circle. If you have read ‘Catch 22’ then you already have the picture.
Lenders have this wonderful credit scoring system, designed to ensure that they capture the best mortgage applicants.
Yet, experience shows that this black box mentality regularly turns away the very customers they should be lending to! The asset rich, who often have no credit liabilities are being declined due to lack of current no credit, or because they don’t appear on the voters role, or because we cannot combine their various income streams.
The list is endless and these are the people who would benefit from manual underwriting where humans look at, feel and touch the application making sensible judgements based upon the facts and not computer logic.
Of course, human nature dictates that the underwriter may still decline a case due to a headache from the night before, or because they don’t like the colour of the ink used on the application form, but at least you can then make a call and discuss the case and not be told ‘sorry, computer says no!’
There are an increasing number of lenders out there who are starting to recognise the value of a ‘back to basics’ approach and these are the ones who are beginning to thrive again.
So, to summarise, Complex Prime is not the new Sub Prime. You may get the odd missed payment or extremely historic and very minor adverse case reviewed. But anything more would be Complex Sub Prime (…you heard it here first!) and maybe that is the next market to re-open in due time.
Finally, and to dispel any misapprehensions, Complex Prime is usually at a maximum of 75% loan to value. It is for clean credit applicants and it is for those who can absolutely prove their ability to afford the mortgage beyond any reasonable doubt.