News Review: Specialist Prime


Specialist prime moniker is out of date


by Charles Haresnape, managing director, Aldermore Residential Mortgages


as i sat down to write this month’s column, i took another look at the title at the top of this page – specialist prime. Which got me scratching


my head. What exactly does ‘specialist prime’ mean in a post credit crunch mortgage market? is it a label that’s valid anymore? in the boom days of


yesteryear there were prime and sub-prime mortgages and we all knew what differentiated one from the other. But the world of sub- prime lending has pretty much disappeared which, by implication, means that today’s market is only open


to prime, creditworthy borrowers. So, going back to definitions,


we now have standard prime borrowers and specialist prime borrowers. Standard prime borrowers are those straightforward cases that fly through credit scoring systems without touching the sides: mr & mrs average in full time employment with a clean credit history and reasonable deposit. Specialist prime therefore


covers everything else: struggling first-time buyers, the self-employed, property investors,


borrowers seeking large loans or buying unusual properties, equity release, applicants rejected by high street lenders........the list goes on. clearly, what differentiates


‘specialist’ prime from standard prime is that, in most instances, the applications


self-builders,


need to be assessed by skilled and knowledgeable underwriters rather than be scored by machines. it’s loan processing the old-fashioned way. But the word ‘specialist’ implies these types of deals are the exception, rather than the rule. is that true, or are squeaky-clean standard prime applications now the exception? the truth is that as the


large lenders that dominate the market continue to chase low loan to value standard prime business so borrowers who don’t fit their narrow definitions of what is acceptable business, start to believe they’re outcasts. Perhaps the time has come


to think afresh about the way in which we define the market and re-educate the majority of borrowers into believing that their circumstances are not


abnormal and that there are mortgage schemes available which are suitable for their needs. more new products are


coming on-stream every day. From a low point in 2009 when there were just 2,301 mortgage products available via intermediaries, there are now 14,361 available today - and the numbers are continuing to rise. rates are very competitive, LtVs are starting to rise and criteria have become more accommodating. the only difference


between the market today and that of five years ago is that borrowers have to be creditworthy in order to qualify for a loan. Which is the way it should always have been. Specialist prime? i’m not sure ‘special’ is relevant any more - all borrowers are special to me!


News Review: Economics Low growth shouldn’t hit mortgage rates


by Fionnuala Earley, UK consumer economist, Royal Bank of Scotland


recent eurozone


developments mean the outlook for the uK economy is much weaker. the Bank of england downgraded its forecast for growth in 2012 to just 1% and expects the economy to be stagnant between now and next summer. But there is some good news. although the


risks are skewed to the downside, the Bank is still not forecasting a recession in the uK. one of the contributing


factors to the Bank’s lower forecast, but also a big uncertainty, is funding costs. the lack of stability in the eurozone and the potential implications this has for the uK has made wholesale funding markets increasingly nervous which doesn’t help liquidity. Funding has become more costly as a result. the spread between the Bank rate and Libor – the rate at


which banks lend to each other - has been increasing since august. the extent to which this strain intensifies and how long it carries on for is really important to the uK’s economic and housing market recovery. While the terms on which


banks can raise funding have worsened, it does not seem to have led to any significant tightening in credit conditions for households. the average loan to value ratio for house purchase has been increasing and loan to income ratios rose too. and even though


funding conditions have worsened, there hasn’t been a corresponding increase in average mortgage rates as a result. indeed average rates have been falling. this is welcome in such a


weak housing market. and if Sir mervyn and his committee are right, the average spread between loan rates and Bank rate will come down over the next two years as economic conditions begin to improve. But the bad news is that the pace of any improvement in credit conditions is very uncertain.


mortgage introducer DECEMBER 2011 19


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