The mere mention of a return to sub prime, adverse credit or near prime Mortgage lending, sends some people running for cover!
However, such products are now available through existing and some newly authorised specialist lenders.
So, is the market going to return to the pre credit crunch lending “lunacy”, which brought the whole financial house down?
Not a chance!
When looking at the lending criteria across the adverse credit mortgage market, it all seems well thought out and refreshingly sensible this time around. Gone is the notion that it is responsible not only to lend more money to a borrower who is currently unable to fund an existing mortgage commitment but also to allow it on a self certification of income basis!
The lenders in this market today take a sensible view of the applicants’ overall financial picture; they want to know how they got into difficulty and, moreover, what has changed in their lives to make things financially better, making a mortgage affordable.
There has been some criticism that the interest rates payable on sub prime mortgage products are a little higher than those payable by those with squeaky clean credit; however it is only fair that such products are properly priced for risk. Indeed, it was a criticism that pre 2007 products were not properly priced for risk, merely aimed at “ buying” market share and that this was a contributory factor in the collapse of the markets.
Our view is that it is simply not fair to operate a ‘blanket’ exclusion policy. Is it fair to exclude a potential mortgage borrower, who may have had a financial problem in the past, which might well have been outside of their direct control?
Overall, our view is that sub prime Mortgage products are an essential, if we want a return to an innovative, thriving Mortgage market.