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No typical customers

There has been much discussion on the timing of the return of the sub-prime mortgage market.

Indeed as part of the FSA’s Mortgage Market Review, there is the question as to what extent it should return and what controls there should be over products offered to those who have displayed payment difficulty.

Customers who hold sub-prime characteristics remain more prevalent than they ever did.   The availability of funds for this market however still remains limited from a lender perspective. 

Both capital rules and genuine concerns over affordability continue to make life difficult for people we looked after very well BNR (before Northern Rock).

One of the key issues that prevailed BNR was that there were a plethora of terms to cover individuals, but no consistency or clear definitions. 

The Mortgage Market Review has considered that it may be good to have clearer definitions of commonly used terms.

A “new” term on the landscape recently is “complex prime”.  When I first heard this I thought I knew what it meant. 

Being of a certain age, this sounded like it was a prime customer, one with no adverse credit issues – no judgements, IVA or bankruptcy and good payment history. 

The “complex” element would have come form the nature of the transaction.  House type, mortgage term, income complexity, issues with ownership or co-owners.

These are not, in my view, prime, complex or otherwise.  They are near prime or soft prime or another term such as light adverse, to be properly determined and defined.

But apparently not, “complex prime” I am told appears to be customers who have incurred “non-toxic debt stress” characteristics. So this is not bankruptcy, an IVA or debt judgements, I assume. 

This is because in any world I understand these are sub-prime characteristics. 

Unless of course these are from a very long time ago, having been satisfied.  Where we may have “issues” are where judgements have been quickly satisfied or where missed mortgage or credit card payments are the reason for the rejection. 

These are different in nature, not paid at all or missed by a day or two. An agreed minimum payment missed or missing the full payment.  Which is a bigger issue?

Different lenders will have their own approaches to these issues.  And rightly so as they will have different experience, risk assessment processes and ability to fund and price for these riskier applicants. 

These are not, in my view, prime, complex or otherwise.  They are near prime or soft prime or another term such as light adverse, to be properly determined and defined.

For me we would benefit from some common terms and we should look to our lenders who want to lend in this market to help us with this.

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  • Low Mortgage Rate 5th September 2010 at 12:15 am

    Low Mortgage Rate

  • michael white CEO emailmortgages 28th April 2010 at 4:07 pm

    I’m a great believer in allowing lenders to price for risk. I also think it should be the lender’s decision how it wants to price its product and the criteria it expects to be fulfilled by the applicant to achieve the loan. This comes with the caveat of course that lenders must lend responsibly, which was not the case for many during the pre-credit crunch years.

    Notwithstanding, we are still left with a situation where vast swathes of so called ‘complex prime’ borrowers or potential borrowers are going to find themselves at the margins of the market over the next couple of years. While Base Rate and lenders’ SVRs remain low the situation is not too bad. However when rates rise we will see many remortgagors/self-employed/credit impaired candidates struggling to gain finance and forced instead to stay on uncompetitive rates or look elsewhere.

    If we are able to get some more liquidity and sense into the mortgage market then it is imperative that the lenders feel able to offer these types of borrowers mortgage products. We are not talking about the heavy adverse/serial non-payer here but those who have been marginalised by recent events through no fault of their own.

    Lenders should remember that not all borrowers are squeaky clean but many are very far from high risk and should be able to find a mortgage product and lender that suits. In short, lending 60% to a 48 year old on twice income with no outstanding debt should not be so readily declined because of a couple of missed credit card payments in favour of an 85% deal to a 28 year old on 4 times income. Not rocket science, honest! Just simple risk assessment by a person with the title of underwriter rather then the computer saying ‘no’. The re-emergence of sensible lending criteria and underwriting methodology cannot come soon enough.

  • michael white CEO emailmortgages 28th April 2010 at 1:07 pm

    I’m a great believer in allowing lenders to price for risk. I also think it should be the lender’s decision how it wants to price its product and the criteria it expects to be fulfilled by the applicant to achieve the loan. This comes with the caveat of course that lenders must lend responsibly, which was not the case for many during the pre-credit crunch years.

    Notwithstanding, we are still left with a situation where vast swathes of so called ‘complex prime’ borrowers or potential borrowers are going to find themselves at the margins of the market over the next couple of years. While Base Rate and lenders’ SVRs remain low the situation is not too bad. However when rates rise we will see many remortgagors/self-employed/credit impaired candidates struggling to gain finance and forced instead to stay on uncompetitive rates or look elsewhere.

    If we are able to get some more liquidity and sense into the mortgage market then it is imperative that the lenders feel able to offer these types of borrowers mortgage products. We are not talking about the heavy adverse/serial non-payer here but those who have been marginalised by recent events through no fault of their own.

    Lenders should remember that not all borrowers are squeaky clean but many are very far from high risk and should be able to find a mortgage product and lender that suits. In short, lending 60% to a 48 year old on twice income with no outstanding debt should not be so readily declined because of a couple of missed credit card payments in favour of an 85% deal to a 28 year old on 4 times income. Not rocket science, honest! Just simple risk assessment by a person with the title of underwriter rather then the computer saying ‘no’. The re-emergence of sensible lending criteria and underwriting methodology cannot come soon enough.