Ahead of Credit Strategy’s newly launched Mortgage Conference, Marcel Le Gouais asked experts whether sub-prime mortgage customers are getting the choice they need – and what kind of comeback these products are making.
“Sub-prime self-cert mortgages will not and should not ever return to the UK mortgage market.”
The words of Andrew Montlake, director at mortgage brokerage Coreco and a speaker at Credit Strategy’s inaugural Mortgage Conference, sponsored by MortgageGym, which will be held in London on October 30.
On the question of whether these notorious products will ever find their way back in volume, Montlake was unequivocal.
After these ‘liar loans’ became synonymous with fraud, which anyone working at the as-was Financial Services Authority in 2007 will attest to, sub-prime self-cert products have almost vanished – and perhaps only a handful of mortgage professionals would say anything other than ‘good riddance’.
When asked about their possible return, Paul Broadhead, head of mortgage policy at the Building Societies Association, was just as clear: “In a word? No. The Financial Conduct Authority has made it very clear in regulation that self-cert is not acceptable in prime lending, so I can’t see a return to self-cert sub-prime.”
It’s safe to say these mortgages, which ultimately turned out to be a disastrous exercise in value destruction, are mostly gone for the foreseeable. They were effectively banned by the Mortgage Market Review, though the Prague-based selfcert.co.uk has managed to circumvent UK regulation by employing the EU’s Electronic Commerce Directive to offer them in the UK.
But while the authorities try to shut down such operations, perhaps there’s another question looming over sub-prime products: How well served are customers with adverse credit histories?
Broadhead added: “Sub-prime is a fairly general term often used to cover a range of situations from those borrowers that have had a few blips on their credit record through to those that used to be called ‘heavy adverse’ who often had a very poor track record of maintaining credit payments.
“For those borrowers that have a bit of a blip on their credit history (the odd missed credit card or mobile phone payment), those customers still have a range of options. Particularly from those lenders that underwrite mortgages manually. Those that have encountered more serious difficulties will still find their options limited.”
While newer entrants have shown an appetite to serve elements of this market, there have been murmurs in the mortgage market that perhaps lenders have become overly cautious in their credit criteria, but with the FCA’s continued focus on affordability, it’s no wonder there hasn’t been an influx of products for those with much more chequered credit histories.
In the last few years those in charge of sales and origination have also witnessed the growing influence of credit risk, as well as the independent assurance and audit teams.
This shift in the balance of power to credit and risk from sales will be a central theme at the Mortgage Conference. For the first time in this market, the conference will bring together both the senior professionals in charge of credit risk and those heading up sales and distribution.
Speakers from Legal and General Mortgage Club, HSBC, Metro Bank, Precise Mortgages and the FCA will tackle issues including how macro changes are altering credit risk, how alternative data can be harnessed, the growth of niche mortgage products and robo-advice. The conference will also split into two streams: Credit Risk and Product and Distribution.
Credit Risk will feature an in-depth look at how the world of risk is moving to meet changing consumer needs and attitudes. Product and Distribution will explore topics such as buy-to-let, the growth of the niche market and the future of financial advice in the face of increasing digitisation.
Perhaps in such discussions the choice of products for individuals, who are self-employed or have adverse credit histories, will emerge.
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