“FROM A CREDIT PERSPECTIVE IT IS EASY TO SEE THAT POTENTIALLY MILLIONS OF BORROWERS WILL FIND IT DIFFICULT TO SECURE A MORTGAGE WITH A HIGH STREET LENDER”


they would have been correct. In fact less than 0.4% of gross mortgage advances in 2010 was to borrowers with some level of credit impairment. After establishing that there are


literally millions of people who are frozen out of the mortgage market due to credit issues what are the options? The first thing to consider is why


would any of these potential borrowers take out a new mortgage now when the average pay rate is 3.5%? My experience based on the applications we have received over the last month is that the need to capital raise is prevalent and this has been driven by many different scenarios. The first and the most obvious is


debt consolidation where expensive debt such as credit cards has been refinanced to our significantly less expensive mortgage rates and because we have products that have no early redemption charges this makes sense for some borrowers. There was £61 billion outstanding on credit cards at the end of 2010 paying an average interest rate of 18% and approximately 30% of those balances were on 0% deals so it is not unusual to see APRs of 25-30%. Life events such as divorces and


separations have also produced some activity and again the need to capital raise in these scenarios has been a key driver. Also, some borrowers are remortgaging simply to get onto a fixed rate or capped rate and this is not surprising given the uncertainty that exists about where rates will be in the next year or so.


cRedit issues Whilst we all know that house purchase numbers are lower than the long term average there are still 50,000 transactions per month and a


percentage of those borrowers trying to buy a house will have a credit issue that prevents them getting a mortgage with a high street lender. I believe that many mortgage intermediaries will have clients that fit near prime criteria and a phone call from their broker telling them that there is an option available to them that wasn’t there a couple of months ago may be of interest.


PRoducts There are products available to brokers that have been designed to meet the needs of borrowers who had previously been served by high street lenders but, as a result of the credit crisis and the resultant tightening of lending criteria, now find it difficult to secure a mortgage. The reason we chose to enter this


part of the market is that it can be quite clearly demonstrated that this segment of borrower exists in large numbers and at the same time is significantly under- supplied by lenders. Before we entered the near prime


market we carried out a survey with mortgage intermediaries that received 364 individual responses, the highlights being: 92.7% believe the near prime


mortgage market does not meet the needs of their borrowers; 66.8% responded that up to 20% of borrowers looking for a mortgage were near prime; 54% said that in the previous six months their ability to place near prime borrowers had decreased; 66.6% responded that up to 25% of their near prime clients were previously prime; defaults were the biggest cause of borrowers being near prime, closely followed by mortgage arrears and in third place was CCJs; 89.6% believed near prime borrowers were likely to be aged between 26 and 45 years old; 39.3% said near prime borrowers required an LTV of 71-80%; 47.7% said near prime borrowers required an LTV of 81-90%; 9.2% said near prime borrowers required an LTV 91-100%. This feedback is clearly saying


that there are borrowers out there that are near prime and that the products currently in the market are not adequately fulfilling their needs. Hopefully you will see that we have listened to the feedback and have produced a range of products that address some of the issues that have been identified. n


Near prime borrowers are typically


Doug Hall is managing director at 3mc


One of the issues that brokers face is the dominance of the big lenders who now account for 90% of all new mortgage business. The borrowers they are all chasing are sub 70% LTV with prime profiles and whilst this is creating some welcome competition and headline grabbing rates it does leave a large segment of potential borrowers out in the cold. If your database is full of prime clients


that is great and you will no doubt be kept busy placing deals with high street lenders. But if you have a mix of clients like the brokers contacting the 3mc mortgage desk, new lenders like Precise Mortgages are to be welcomed.


the very borrowers that would use a broker rather than going into a high street lenders branch so anything that gets this market going again will directly benefit the intermediary market. Lenders that are dedicated to the intermediary market and bring new mortgage products to us are to be applauded as I am sure you are only too aware of the dual pricing that is going on behind our backs and of course the less well known practice that some lenders are surreptitiously deploying of using dual criteria to put their branches at an advantage. Whilst the new lenders are relatively


small in volume at the moment we should support them wherever we can; hopefully over time the volumes will grow and they will put pressure on other lenders to stop treating us like second class citizens that they can use and abuse whenever it suits them.


morTgage iNTroducer MARCH 2011 45


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