Mortgages  

Lenders return to the sub-prime mortgage market

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Specialist lending moves into the mainstream

Lenders return to the sub-prime mortgage market

Life can throw curve balls, which can make it harder for some people to secure a mortgage from mainstream lenders.

Banks and building societies have shied away from servicing those blighted by unconventional circumstances that pose a heightened risk to business following the 2007/08 financial crash.

This has been further exacerbated by the advent of the Mortgage Market Review – which placed ultimate responsibility for suitability of any product with the lender and not the adviser.

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However, recent history has seen the proliferation of lenders focusing on consumer lending underserved by mainstream banks, including sub-prime and self-employed mortgages as well as bridging loans.

The Financial Adviser poll of 149 respondents showed that almost two-fifths of readers believe specialist mortgages will be a new business opportunity for them. However, just under half of the sample appear less confident, answering “possibly”.

Mortgage loans made to individuals with tarnished credit histories were widely blamed for sparking the global credit crisis of 2007/08.

However, the market has seemingly risen from the depths of obscurity, with rating agencies Fitch and DBRS rating the first securitisation of a sub-prime loan since the crash, in June this year.

Fitch hailed the deal as a “trailblazer”, predicting that similar offers were to come in the third quarter.

The resurgence of sub-prime mortgages has provoked mixed responses from the survey participants who responded to a question asking them to rate whether or not they are more likely to advise on adverse credit than five years ago.

Only 14 advisers said they were a lot more likely, but a greater number of respondents (22) said the opposite. Just under a third claimed their attitude to the advice area had remained unchanged, while 30 per cent stated they were “somewhat likely” to offer advice in that circumstance. Another 22 respondents said they were a little more likely to assist clients with tarnished credit histories.

On the highest loan-to-value they would seek on an adverse credit mortgage, almost a third of advisers said 70 per cent LTV, ahead of 80 per cent LTV (32 per cent) and 90 per cent LTV (23 per cent).

Matthew Bird, investment and mortgage adviser at Newport-based Seer Green Financial Planning, said: “sub-prime mortgage applications can be a time-consuming process, but if you are dealing with these applications on a regular basis, you become more efficient and have a better understanding of which lenders are likely to approve certain cases.”

Key points

Two-fifths of readers believe specialist mortgages will be a new business opportunity for them

A third say their attitude to aderse credit advice has not changed in five years

Most respondents had not noticed a rise in the number of requests for bridging loans over the past 12 months

A short-term loan given to cover an interval between the purchase of one house and the sale of another is also a burgeoning area of the specialist lending market if recent data is anything to go by.