Brokers insist another sub-prime scandal isn't looming

Brokers insist another sub-prime scandal isn't looming

Brokers are confident tougher rules around so-called sub-prime mortgages will prevent the return of irresponsible lending.

After lenders fled the market with the credit crunch the specialist lending sector, which caters for niche market segments such as buy-to-let, lifetime mortgaging and those with poor credit ratings, has undergone a boom in the recent years partly driven by the rise of intermediaries.

According to the Intermediary Mortgage Lenders Association, the total value of specialist lending has more than tripled from £5bn to £17bn per year since 2009.

But the rapid growth of household borrowing – the vast majority of which is made up of mortgages – has prompted warnings from the International Monetary Fund that it could spark another crisis.

Yet mortgage brokers are largely unconcerned by the rise of specialist lending, as tighter regulations have been put in place since the financial crisis.

Bob Riach, principal at Scunthorpe-based Riach Financial Advisers, said: “I think over the last six months to 13 months I have started to do a bit more on [specialist lending]. 

“I think a lot has been brought about by high street lenders tightening up on criteria, and that is pushing people to a lot of specialist lenders.

“The ones I have done have been when people have had a minor credit blip, but it has been recently.

"I had a client who made a late payment on two credit cards; they did not pay the direct debit and went on holiday so they were a week late, and it was in the last six months. High street lenders would not touch it. 

“It is not something that concerns me. They will lend on the cases but they do tend to ask more questions.”

Mr Riach added that the lenders will ask for supporting documents to prove why payments had been missed; he said they check bank statements and do an audit trail.

“They are treating the customer fairly and doing due diligence, so the quality is going to be better,” he explained.

Jane King, mortgage adviser at London-based Ash-Ridge, said: “I think someone said six months ago that because the prime market was so competitive, lenders are now fighting for the bottom of the market rather than the top of the market. 

“Lenders are now considering people with various issues who two or three years ago would have struggled. At the bottom end, there is a lot more choice, and lenders are taking more of a relaxed view. 

“There is no margin now at the top. Buy-to-let has fallen of a cliff where I am. What are lenders going to do?”

Ms King added that affordability rules still applied, so borrowers have to be stress tested to show they would be able to cope with a rise in interest rates.

She said: “If a customer can afford it, their background is less and less important – if you put a reasonable premium on that rate.