Why subprime has returned

This article is part of
Guide to the return of subprime

Helping complex borrowers

Mr Torpey points out over the past five years, traditional specialist lenders, such as Kensington Mortgages and Precise Mortgages, have “expanded exponentially with the improving securitisation market”.

“Private equity investment has also helped these lenders expand their product ranges to meet the demands of complex borrowers, such as self-employed workers and contractors, or those using Help to Buy and new build schemes,” he explains. 

“Other specialist banks, Aldermore and Secure Trust Bank, for example, and finance companies – Bluestone Mortgages, Pepper Money, Together Money and Vida Homeloans – have since launched into the market due to the attraction of the credit profile, margins and performance of these customers.”

He argues that improved regulation of the sector, as well as “healthy” competition between lenders, has helped to drive down costs for borrowers.

In June 2017, Pepper launched a new near prime, or NP, product as part of its core residential range aimed at those with marginal high-street credit score fails. 

It confirmed the product can also accommodate those borrowers with no county court judgments (CCJs) or defaults in the last 48 months.

Rob Barnard, sales director at Pepper Homeloans, explained: “Adverse credit records remain on file for 72 months, despite the fact that borrowers may have conducted their finances in an exemplary fashion in recent years.”

Ipswich Building Society also launched a range last year for borrowers who want to “get back on track”, claiming that its more flexible underwriting approach means it could help people who usually “fall outside of the brackets defined by many larger mortgage lenders”.

Its SOS mortgage range comprises three products for “increasing tiers of credit repair”, with the idea being that borrowers who make all payments on time over the initial discount rate period can transfer from the specialist SOS product to any of the building society’s standard mortgage retention products.

The rise of the self-employed

“With nearly 5m self-employed workers in the UK, unusual income patterns, demands and habits have become a lot more common, but lenders who adopt automatic credit scoring will often reject a mortgage application from these workers, as they don’t fit traditional lending criteria,” explains Jeremy Duncombe, currently director of Legal & General Mortgage Club.

Lenders now are focusing on the changing needs of borrowers.

Mr Torpey observes: “The total lending volumes of specialist lenders are a fraction of the numbers seen in 2007. However, the UK is seeing a rise in contractors and self-employed workers, who now represent 15 per cent of the UK workforce, and demand for lending options for this group is set to grow.