risk as opposed to the days when you would give someone with a CCJ high street rates. AC: Right now we’re not looking to put our prices up because they’re broadly in line with where we would expect it to be. People need to be paid out of the cost of the mortgage so that’s what’s driving the cost at the moment. It seems to be relatively stable. LIBOR is still going all over the place. Pricing at the moment is good value for customers and decent returns for lenders.
IS THERE A NEED TO RETURN TO SUB-PRIME PRICED APPROPRIATELY? AC: I think you’ve got no chance. It’s a question but it’s moot. That’s not coming back and it can’t come back at the moment. I would class sub-prime as being a very different beast from near prime. Sub-prime generally was written self-cert. It was unlimited in some regards and that was true sub-prime. That can’t come back because self-cert has gone so all income has to be checked and I can’t see any lender in the near future going that far down the credit curve. Why do it? The market would have to change fundamentally. I’m thinking beyond 10 years before we get any sniff of that in any volume. Clearly you can get any loan you want if you go far enough into the backstreets but it’s not going to become a feature of the CML member mortgage market. DJ: There are providers for that already. We can look at someone who’s bankrupt and discharged yesterday.
WHICH LENDERS ARE DOING THAT? DJ: MBS Lending. They’ll look at it. It’s priced, it’s credit scored. Inevitably if they’ve come out of bankruptcy yesterday they’ll inevitably fail the credit score. AC: But what percentage of the market is that? There might be only two loans done. DJ: Agreed but it is there at the moment. You’ll be charged 9% and the LTV is probably 50% or 60% maximum. IG: We’ve done the odd discharged bankrupt deal at that sort of rate and
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LTV. I do think we’ve been a little unfair on self-cert in that there were people who self-certified because they could, not because they couldn’t evidence their income. DJ: At the moment brokers don’t know where to place this type of business and it’s out there. There’s a huge volume out there.
HOW DO THEY LOOK FOR IT? DJ: That’s a good question. That’s the educational piece. At the moment a lot of brokers are living off their existing customer database who are clean and straight forward and they work off a referral basis. If they were to advertise to that same database and say: “Do you know someone who’s missed a payment?” then it will be there. They will know someone who’s struggling to get a mortgage somewhere because they’ve gone to Nationwide and been declined and gone into Halifax and been declined and they’ve given up. AC: There’s loads of ways they can find out. If someone in the mortgage industry reads this magazine, that’s one route. You’ve got distributors like AToM who’ve been around for a long time. A lot of guys who did a lot of this have probably gone because the specialist market has been more adversely affected than the mainstream market. DJ: We’ve seen a lot of brokers come back who had previously shied away from it. They’re using it as a one year stepping stone to get back on to the high street. They are getting paid two proc fees at the same time.
HOW DOES THE REGULATOR FEEL ABOUT NEAR PRIME? AC: There was reference to it in the MMR document so they recognise it has a place. We obviously engaged heavily with the regulator when we were getting permissions. The MMR talks about
affordability so if you’ve got someone who can afford the mortgage but they are being denied for some other reason, then so long as you can prove affordability then the regulator is open to do responsible lending in that sphere. IG: The regulator is fine with letting lenders do whatever they want provided the business is golden and the risks are managed and the controls and checks are in place. The regulator does set limits on the proportion of mortgage books lent in certain segments but they’re not stopping anyone from lending if they believe it’s being run properly. LS: I’ve just been through our corporate plan with our supervisor and on there was near prime, high loan to value and the question was what proportions we’d be doing and how we’d manage it. There was no set rule about not being able to do more on x, y or z. AC: The regulator is not suppressing this market. There are other forces suppressing this market. What they said is as a result of MMR, when the market becomes frothy again, there will be an impact at that point because there will be people who would’ve been able to get a mortgage pre-credit crunch who won’t be able to get it going forward and near prime is the most affected sector in that scenario.
WHAT’S THE TURNING POINT FOR THIS MARKET? WILL THERE BE ONE OR WILL IT ALWAYS BE ON THE FRINGE? AC: It’s all about funding isn’t it? There’re millions of people in this bracket. Four million people miss credit card payments every year. Two and a half million have got a CCJ. As they start moving which will be driven partly by supply funding, then you’ll see this market get bigger. But I think this will be consumed by the larger lenders.
MORTGAGE INTRODUCER MARCH 2012 37
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