News Review: Specialist Prime

Product profusion or product confusion

by

Colin Snowdon

chief

executive, residential mortgages, Aldermore

as i write this article, Spring is certainly in the air and Sum- mer is on the way. the daffo- dils have caused a riot of co- lour in the garden and even the drive has started to sprout its usual early crop of weeds. it’s not just mother nature

who’s been busy generating new life - so has the lending industry. in the last few weeks we’ve seen a rash of new prod- uct announcements from a number of lenders, including names we haven’t traditionally associated with the mortgage market. For example, the Post office has launched a first time buyer 90% LtV mortgage and there is speculation (al- though, as at the time of writ- ing, no confirmation) that this product may even cater for ad- verse borrowers. tesco has also turned up

the heat by announcing that it intends to corner a 10% share of the uK financial services market, which will make it about the same size as abbey. not bad for a grocer turned bank! although tesco has not yet officially announced when it intends to launch its own mortgage products, the word on the street is that it may be as soon as the end of this year. throw into the mix a few

other non-traditional play- ers such as Virgin, the yet to be launched metro Bank and, of course, aldermore and it’s very evident that the lend- ing landscape is changing dramatically.

Rising LTVs

the Bank of england’s regu- lar poll of lenders has also revealed that for the second quarter running LtVs have been rising and it is expected that its next quarter’s report (Q2 this year) will show a fur- ther modest increase in LtVs. Kensington also surprised

the market by announcing that it will consider applicants with up to two ccJs, provided they are for no more than £750 and have been satisfied for at least six months. What’s more, they are also willing to accept two defaults in the past two years, if they have also not occurred during the past six months.

Exciting

this news had brokers and distributors excitedly predict- ing Kensington’s return to the sector of the market which it was largely responsible for defining: sub-prime. However, Kensington has been quick to quash that rumour, stating that ‘it’s not on our radar to enter the sub-prime sector in the foreseeable future’. Which raises a very inter-

esting point and one which i wrote about in this col- umn last month: the use of terminology in the mortgage market. if two ccJs and two defaults in the past two years does not constitute sub-prime lending, then what does? Kensington will no doubt ar- gue that such borrowers have been assessed to ensure af- fordability and, although they have an historical adverse credit record, they are per- fectly creditworthy borrowers today.

Define what?

it may not be a definition of

6 mortgage introducer MAY 2010

IF TWO CCJS AND TWO DEFAULTS IN THE PAST TWO YEARS DOES NOT CONSTITUTE SUB-PRIME LENDING, THEN WHAT DOES?

prime which some parts of the market choose to recognise, but Kensington nonetheless has an interesting point. the problem, of course, is where do you draw the line; at what point does prime become sub- prime? or, to look at it from a slightly different angle and us- ing terminology re-introduced to the market by all types of mortgages recently, when does complex-prime become main- stream? are lenders simply play-

ing with semantics in order to launch sanitised versions of what we all used to regard as sub-prime deals, or are they using mortgage moni- ker’s which have outlived their use and which confuse rather than clarify what’s really on offer? Prime, near prime, sub-prime, complex- prime, specialist-prime, so prime you can hardly taste the difference - and mainstream. What value do these terms have - if any? the answer is that they’re

of no use whatsoever. What matters, of course, is the cred- itworthiness of the applicant

and their ability to comfortably afford their monthly mortgage repayments. most brokers are far more interested to know how lenders go about the task of assessing creditworthiness and affordability, rather than knowing whether lenders de- fine a product as being prime, near prime or sub-prime. Brokers understandably want to know if lenders use rigid credit scoring models and in- flexible income multiples, or if they employ skilled under- writers and use sophisticated affordability models?

Underwriting

Based on the conversations i’ve had with numerous mort- gage brokers and distributors in recent weeks, there is no doubt in my mind that lend- ers’ approach to underwriting is high on their list of priori- ties, which is completely un- derstandable. the key issue is whether their clients are deemed to be creditworthy, not the degree to which they are ‘prime’. ironically, the term sub-prime was first introduced by the ratings agencies, who used it as a descriptor when assessing mortgage books for securitisation purposes. it was never intended to be used as a way to define individual bor- rowers. i think the time has come

when, as an industry, we should all make a concerted effort to abandon the use of terms which have had their day. they help no-one and only serve to confuse rather than clarify. Which is all well and good

except for one small problem - the title at the top of this page says ‘specialist prime’ (not my choice!). Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48