Review: Sub-prime
One step forward or one step back? by
Clive Willson, sales director, Magellan Homeloans
I was well aware that when Ma- gellan Homeloans launched in August this year it was likely to fuel a few debates in the mort- gage market! I was therefore not sur-
prised to hear some pundits condemning the launch as a return to the bad old ways of pre-credit crunch sub-prime lending, accusing us of tempt- ing vulnerable borrowers with over-priced mortgages that would inevitably lead to fur- ther financial difficulties and contribute to an over-heated mortgage market once again. It goes without saying that I
beg to differ with those views and I would like to take this opportunity to correct some misunderstandings and create some balance to the debates taking place. Let me start by knocking on
the head the notion that Ma- gellan is no more than an old style sub-prime lender in new clothes, because it’s not.
Old days If you cast your memory back to the mortgage market pri- or to the onset of the credit crunch, you’ll remember that a number of specialist lend- ers were marketing sub-prime mortgages to borrowers with any amount of outstanding adverse credit and they were doing so with rates designed to generate market share. Magellan Homeloans is do-
ing neither. We don’t lend to borrowers with ongoing fi- nancial issues and we’re not
pricing our products simply to generate market share. We’re only willing to lend
to borrowers who can evi- dence the reasons why they got into financial difficulties and, most importantly, who can also demonstrate that they have resolved their financial problems and have had a clean credit record for at least a year. We’re not willing to lend to borrowers who are dependant on housing benefit, or have outstanding loans with payday lenders or who are clearly ha- bitual debtors with no desire or ability to manage their fi- nances responsibly. We are, however, willing
to lend to borrowers who, possibly through no fault of their own, have experienced a one-off life event which has resulted in an adverse credit record. We recognise that, un- fortunately, people do hit diffi- cult patches which can lead to financial problems. Encoun- tering problems isn’t the key issue, it’s how people deal with those problems and then man- age their finances thereaſter that’s really important.
Affordability We are far more interested in what a borrower has done to get their finances back on track and the reassurances they can give us that they can comfortably afford a mortgage both now and in the future. We are therefore a far cry from the sub-prime lending model of old. Another accusation that has
been made is that our rates are high and we should only be a lender of last resort. Actually, I agree with both of
those statements. At 8.55% our mortgage rate
28 MORTGAGE INTRODUCER SEPTEMBER 2013
doesn’t bear comparison with some of
the leading prime
mortgage rates - and it would be rather strange if it did! Our pricing not only has to reflect the greater risk we’re taking on but we also have to factor- in our cost of funds. We’re not a bank and don’t have access to some of the low cost fund- ing schemes available to other lenders. Our pricing therefore has to take both risk and fund- ing costs into consideration.
Consolidation However, let’s also keep our rate in perspective. We’re talk- ing 8.55%, not the sort of rates charged by many payday and secured loan companies. For some borrowers,
if there are few other options available to them.
it will still
make sense for them to con- solidate other forms of more expensive debt into a single mortgage which is affordable to them. When you take into consideration the different types of finance that borrow- ers may want to consolidate, such as credit cards and unse- cured loans, then 8.55% may make perfect sense. And with no early repayment charges on any of our products, borrowers are free to re-join the main- stream market when the op- portunity arises in the future. Clearly it’s critical that bor-
rowers are given independent, professional mortgage advice before committing to a mort- gage with us, which is why we insist all applicants talk to a mortgage adviser (in fact, we don’t accept direct applica- tions). And if there is a more competitive deal available then it’s the responsibility of the broker to recommend that deal to their client. We under- stand that borrowers will only come to Magellan Homeloans
Second chance I must admit that I was sur- prised to see some brokers say they would never consider recommending our prod- ucts. What that means is that if a borrower has an histori- cal adverse credit record but can prove they have regained control of their finances, then brokers will not help them get a mortgage. Why? Tat’s like telling someone who may have picked-up a number of mo- toring offences over the past few years that they can never drive again. Surely, it’s the role of a broker to help borrowers explore the options available and then make an informed choice, based on the facts and the benefits of the deals on of- fer? And finally, what about the
accusations that lending to borrowers with an impaired credit record runs the risk of creating an over-heated mort- gage market once again? Te volume of lending into this sector needs to be kept in per- spective. Compared to other sectors such as first-time buy- ers, next-steppers and buy-to- let, it’s tiny. Schemes such as Funding for Lending and Help to Buy will have a far greater direct impact on the housing and mortgage markets than impaired credit lending ever will. It’s understandable that
people feel nervous about a resurgence in impaired credit lending, but what Magellan Homeloans is offering needs to be assessed on its own merits - not based on the type of lend- ing that was available more than five years ago.
www.mortgageintroducer.com
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