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MBE Manchester: 100% LTV loans and sub-prime must return

The sub-prime market and 100% LTV loans must come back for the housing market to recover, says industry PR 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 John Wriglesworth, chairman of financial services PR firm The Wriglesworth Consultancy and a former economist for Hometrack, says the market will recover when sub-prime and 100% loans come back to the market.

He says: “Unless 100% 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 to the market and risk pricing should come back to the market. If you want to lend six times income, charge 8%.”

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  • Tim Hague 28th May 2012 at 11:36 am

    It feels like there’s a lot of knee-jerking and people jumping on the band wagon here. John has a long and distinguished career and does know a bit about his subject!

    I’m not personally convinced about the need for 100% deals… there will be a small market for them but getting 95% up to speed should be a priority first…

    I do, however, believe there is a strong argument to re-visit sub prime. The recession will have caused a few dents on consumers’ credit records. Redundancy is common place now and many people will have faced difficulties before they got their financial feet back on the ground.

    We are now 5 years into the credit crunch and it’s entirely possible good quality borrowers have had time to lose their job, get into difficulties, land a new job and recover their finances. Does that mean they should be mortgage prisoners? I don’t thinks so. I just think it’s a job for manual underwriting…

  • Simon Mouncher 26th May 2012 at 8:01 am

    Talk about shooting a man down in flames.

    The basis for what John has to say is correct, or do you all want an economy where banks only lend to AAA rated clients. Everybody has been effected by the downturn that started in late 2007.

    We have hundreds of thousands of people sat on SVR and cannot move even if there LTV is 60% because they now have a CCJ or default.

    The problem in the past was caused by lenders wanting to have the largest market share and paying no attention to rating the risk of the clients they were lending too.

    You all seem to have short memories as you thought this was great at the time, but now you think we should never lend a penny to someone with adverse credit.

    Lending goes in cycles as I remember coming to the market when J&J securities only had two products 70% LTV for very minor adverse and 75% for more serious adverse. The rates were 9.9% and 11.9% respectively. There was a debt to income ratio so money was only lent to people who could afford it.

    Maybe a sub prime model around risk and correct pricing is the answer.

    Moving onto self cert, which for the record I am not suggesting we return to before you shoot me down, but it has a place.

    In my early time in the market an accountant had to provide a certificate to confirm affordability. Yes there will be bent accountants but you have to start somewhere.

    Self Cert for employed people always confused me, yet mortgage brokers used it daily. Where was the responsibility for checking affordability then?

    As far as I am aware none of the self cert lenders have published arrears figures for the books they hold.

    Using TMB as an example who did self cert to people with no adverse, I suspect their book performs very well.

    I would be interested to what you all think we should do with the self employed people who are stuck with the mortgage deal they are in yet they have no adverse credit and have never missed a payment on their mortgage.

    The sub prime market will return but I suspect it will be via a funding line that has no previous exposure to the UK market. At present we are just building up a huge amount of customers that have no option but to stay where they are.

    The above means no one moves house, builders are reluctant to build new homes and the market remains stale. Im sure thats what you all want!

  • david barker 25th May 2012 at 11:46 am

    Has he forgotten what got us into this mess. US banks lending to people who could not afford to repay their mortgages! The way the market will recover is for houses prices to fall to affordable levels.

  • Tom Paine 24th May 2012 at 9:47 pm

    There’s an underlying assumption here that the decade 1997-2007 – the biggest housing boom in history – was somehow a ‘normal market’.

    This is the biggest fallacy. The consensus ought to be ‘never again’. It’s completely possible that growth as we used to know it – that is, the ever-rising property market – may never return.

    Japan has had 20 years of property deflation, and their governments have tried all the tricks we are now trying.

    Just suppose ‘normal’ takes 20 years to come back. What’s the logic for these sub-prime loans (ie loans to people with borderline ability to pay back, who pay over the odds in the first place) then?

    This idiot should crawl back under his stone and have a proper think about what he’s calling for.

  • Joe Dunn 24th May 2012 at 6:44 pm

    What we need are cheaper houses – not 100% mortgages. What equity is there for the banks? None – far to much risk.

  • Anonymous 2 24th May 2012 at 6:42 pm

    Wrigglesworth needs to learn basic economics.

  • Stuart Duncan 24th May 2012 at 5:12 pm

    There is no need for the return of sub-prime. All it needs is for lenders to do what they claim to on the sourcing systems: “The Lender will judge customers with previous or existing adverse credit in a flexible manner and every case will be judged on its individual merits, along with the customer’s ability to keep up repayments on the mortgage, taking into account his/her existing liabilities.”

    By all means refuse those cases where there is evidence of financial recklessness, but why is there a need to charge people extra if their troubles were beyond their control?

  • E 24th May 2012 at 4:32 pm

    There is a wrong and right client for everything and any good adviser will have encountered both.

    The genuine person who should be allowed a sub-prime mortgage who had some financial difficulties for a reason and has since been fine with making their payments, as opposed to the type who got into arrears because they couldn’t be bothered or are so disoragnised that they continually make late payments/make late payments every now and again.

    Likewise with 100% mortgages (there are some available with a parental property guarantee at present but I don’t mean those ones) – for people with a good credit history who can afford the payments then why not? Ok its a risk for a lender, and they would receive a higher rate by way of compensation for taking this risk. For those who would be stretched financially to make the payments or have a poor credit history, no!

    As for the whole interest only debate why not for the right clients, eg: a person with a protfolio of BTLs who will dispose of some to repay the ones they wish to keep longer term, why not? A person whose income is realistically going to increase (eg: someone training to be an accountant for example) who will be able to affird to convert to repayment/overpay in the next few years, why not?

    Ok so many lenders, and sadly brokers too (although hopefully many of those are no longer operating) have abused this (not to mention all those sneaky customers who go direct – how many of you have been asked, yeah ok so you say I don’t fit the lenders’ criteria, so why don’t we just self cert? Errrm thats hardly the point, its fraud so big fat NO Mr client!) and spoilt things for the rest of the country.

  • Paul Neill 24th May 2012 at 3:39 pm

    Yes, sub-prime excesses were wrong but so is the current situation where I can’t get a buy-to-let mortgage for a guy with a 999 credit rating who missed one mortgage payment 15 months ago and otherwise has never missed any payment in his life. As always the reaction is causing as many difficulties as the original problem.

  • Phil 24th May 2012 at 11:21 am

    Some people are uncreditworthy I agree, however some others have experience credit problems purely down to a decrease in income due to the economic climate. This does not them them habitual non payers and ofeten they are the ones who will tale extra precautions to protect themselves in fututre. If no helps them to help themselves then we may as well all go back to living in caves. It is not a crime to get into financial difficulty, it is only wrong to get into problems by deliberately abusing the system.

  • Luke Atkinson 24th May 2012 at 9:59 am

    The majority of ”sub prime” are not those who have experienced hardship during the recession, these are people who put their Sky TV, their BMW car payments and their 100 cigarettes a week before paying their credit commitments…..and this was in the good old days pre Lehmans and before the recession hit!
    Some people are not credit worthy, thats the crux of it.

  • marc 23rd May 2012 at 7:53 pm

    Subprime should come back, but sensibly, there are so many customers that have defaults CCJ’s for many rerasons out of their control, if its affordable and they can demonstrate that the have never missed a mortgage payment then there should be a product, the problem is when you mix in stupid sub-prime like the Any any plan SPMl had, if some one misses mortgage payments then they are a risk and and dont prioritise the mortgage over othewr debts, but lets face it, it wont come back, lenders dont want these assets on their books at all, they dont want to lend the FSA wants them to save, probably so the govenment can borrow it instead !!

  • Justin Fordham 23rd May 2012 at 6:34 pm

    Sub Prime has to come back if we are going to avoid another catastrophy and time bomb. I have a lot of clients who have taken debt advice from Debt management companies or charities, and have managed to stabilise themselves by going onto debt management plans. They now have defaults and the odd CCJ, however as they are now repaying their debts (all be it via a DMP or agreement with their creditors) and most of the adverse has been minor or they have prevented anything more serious. This said, the fact they are on a DMP and have managed to stabilise themselves, is irrelevant in today’s markets as most lenders won’t look at them now. To me this is a very short sighted view by the banks on helping these clients with DMP’s. Firstly they have sought debt advice (taken responsibility for their debts) and are actively being managed (by the DMP companies) to repay their debts, and secondly most of these lenders have also lent to these clients on an unsecured basis. Surely by offering these DMP clients a re-mortgage, say into a 3-5 year fixed rate, would actually help create a stable environment for these clients to continue to pay back “ALL” their debts?! A fixed rate mortgage = stable mortgage payments for the clients. A DMP = stable repayments to all their unsecured debts, and this can only equal a “win-win” situation for the lenders and clients. Restrict LTV’s accordingly, don’t lend to very high risk individuals, but help the vast majority. Once rates start to increase again and if these clients aren’t in a stable mortgage environment by then, it will be a lose-lose situation for the banks and clients! Prevention using common sense in this case, is by far the better option than the real consequences of ignoring this problem!

  • Mile1 23rd May 2012 at 5:33 pm

    I Never liked 100% mortgages as the buyer should have at least some interest in the property however it’s always a read herring because a 50% mortgage would be useless if the borrower could not afford the monthly payments but 100% mortgage to someone who could easily afford the payments could be sensible. Limiting LTV only protects the lender if property goes into possession and does nothing either for the borrower or the economy.

  • charlotte Dean 23rd May 2012 at 5:07 pm

    I disagree, I think there is a place for sub prime. Affordable sub prime for customers who have experienced hardship as a result of the recession and have demonstrated that they are now back on track. What there isn’t a place for, is products for customers who are serial non-payers or unaffordable income multiples. The reason sub prime didnt work before was down to greed by lenders and some brokers who abused the system, all the while cashing in on high proc fees whilst placing customers on unaffordable mortgages. Thankfully, most of those have been forced out of the industry.

  • charlotte Dean 23rd May 2012 at 4:59 pm

    Has J Wriglesworth been on the sherry?

  • Mortgage Broker 23rd May 2012 at 4:56 pm

    While I agree generally with the sentiments being expressed, I do think there is a market for 100% mortgages for the right clients.

    Anything above that is thankfully long gone, and will never return. However I have a number of clients who in the past have had 100% mortgages and has helped people onto the property ladder who in other circumstances would have struggled to save a deposit.

    Ultimately, risk is the key word. If the right risk controls are put in place with 100% mortgages, it can certainly help kickstart the bottom rung of the property ladder and start to move the rest of the market forward too.

  • Bob the builder 23rd May 2012 at 4:55 pm

    There is only so much nonsense that one person can fit into a discussion however Mr Wrigglesworth must be trying for the world record.

    If the market were to bring back sub prime the effect would simply be pushing problem loans around from lender to lender, not educating the people who are in the position and putting a band-aid over an amputation injury.

    Very short sighted and I’m surprised that anyone in the current market would be so brash as to suggest such insanity!!!

  • Anon 23rd May 2012 at 4:41 pm

    Clearly his desire is to create a large amount of publicity through a commenting like this, however, I feel his comments lack any real intelligence of any kind.

    Sub-prime, as much as we all used to enjoy selling it, is flawed in so many ways. If I lend someone money and they dont pay me back, why on earth lend them more money? But maybe then I can lend them more money, but charge a higher rate?oh and then what a surprise they cant afford to pay that back either!

    Then I tell you what, I could package all of these mortgages up and then sell them to other banks and investors, so I can keep lending more money to people who cant pay me back.

    Seriously, where has this guy been living for the past 4 years!

  • John Lacy 23rd May 2012 at 4:35 pm

    Mr Wrigglesworth is to put it politely “whistling into the wind”.
    We actually don’t need either of these things but we do need a better educated clientele who realise that they will have to work hard and save money for a deposit.
    The other educational need is for those who think that a slapdash attitude to their finances will be acceptable to be told to go away and come back when they have a grown up and responsible to debt and regular repayments

  • colin 23rd May 2012 at 4:31 pm

    LOL….that will make few delegates choke on their lunch, especially those from lenders!!!!!!

    makes alot of sense……if done properly and like 6-7 yrs ago

  • SOX 23rd May 2012 at 4:31 pm

    Whaaaaaat!???? Yes that’s right lets lend people who don’t fit the affordability model already exactly what they want to borrow and then charge them MORE so they have even less chance of affording it. THEN when they default on their mortgage we can sell them Sub Prime which will cost them even more again! And lets find people who have already demonstrated an inability to maintain their credit commitments and lend them some MORE money, we can justify that because we will charge them MORE! This kind of MAD logic is what got us into this mess in the first place! Here’s a radical thought lets stop trying to line our pockets and concentrate on offering some customer care, the same deals available direct and via brokers with the client being aloowed to ‘choose’ wether they require advise or not and paying only one fee, and being awarded sensible lending and a fair price, crikey I despair!

  • charlotte Dean 23rd May 2012 at 4:20 pm

    6 times income @ 8%?! How about we bring back self-cert too? Let’s lend to people who are on state pension only until they are 90 for good measure. Of course sub prime will come back and of course there is a place for it, providing the lending is responsible. What ISN’T responsible, is lending people money they cannot afford to repay.