Mortgages 

Guide to the return of subprime

  • Learn what is meant by subprime or credit impaired and how the market has developed since 2007.
  • Understand why providers have re-entered the subprime market and what the signs of another crisis are.
  • Comprehend how to clients with complex mortgage needs onto the property ladder.
CPD
Approx.60min
Guide to the return of subprime

Introduction

Say the word 'subprime' to anyone in the mortgage industry and it is likely to bring to mind the financial crisis of 2007.

In the years prior, mortgages were being handed out to all types of borrowers, including those who simply could not afford the repayments. The issue was particularly acute in the US but the UK market was also taking lending risks.

Put very simply, it was this type of lending which eventually led to the crash.

Since then, both the mortgage market and the regulator have taken steps to ensure nothing on that scale ever takes place again.

But there are still borrowers with imperfect credit histories who want to take out mortgages and can do so, as specialist lenders and building societies have come to market with products for those who are usually described now as credit impaired, rather than subprime.

Charlotte Nelson, press officer at Moneyfacts, observes there are products out there but the affordability rules are tougher.

She insists: "The market has learned from the past, which means stricter rules are now firmly in place, with many of the lenders offering these deals looking more in-depth into a borrower’s history."

This guide will look at what subprime, as it was once known, is and how the market is different from the one in 2007. It will also explore whether there is still a need for subprime or credit impaired mortgage ranges and what type of borrowers are likely to benefit.

It will also question whether another subprime crisis could occur and the signs to look out for, and how advisers and brokers can help those clients onto the mortgage ladder.

The guide is worth an indicative 60 minutes of structured CPD.

Contributors to this guide: Ray Boulger, senior mortgage technical director at John Charcol; Charlotte Nelson, press officer at Moneyfacts; David Torpey, chief operating officer at Bluestone Mortgages; Jeremy Duncombe, director of Legal & General Mortgage Club (at time of writing); Rob Barnard, sales director at Pepper Homeloans; June Deasy, head of mortgages policy at UK Finance; Moneyfacts.co.uk; UK Finance; Department for Communities and Local Government; helptobuy.gov.uk; Homegrown; Ipswich Building Society.

Ellie Duncan is deputy content plus editor at FTAdviser

In this guide

CPD
Approx.60min
  1. According to Mr Duncombe, a combination of three things created the subprime crisis of 2007. Which one of these is the odd one out?

  2. Moneyfacts.co.uk reports there were 8,148 credit impaired products in July 2007. How many does it say there are today?

  3. Mr Boulger says lenders are being encouraged to move up the risk curve once again due to three conditions. Which one of these is not in his list?

  4. Mr Torpey makes the following statement - true or false? "If there were ever signs to look for, it would be a relaxing in lending criteria, excessive growth, high LTV [loan to value] lending and increased arrears, and all of these are prevalent in the market today."

  5. According to Mr Duncombe, L&G Mortgage Club's latest research shows how many consumers are unaware that a mortgage broker can offer greater product choice than a bank or building society?

  6. Mr Boulger recommends clients can mitigate risk by keeping readily available savings of how much?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Learn what is meant by subprime or credit impaired and how the market has developed since 2007.
  • Understand why providers have re-entered the subprime market and what the signs of another crisis are.
  • Comprehend how to clients with complex mortgage needs onto the property ladder.

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