With tighter regulations coming into force next year, the industry is debating how long exclusive referrals between mainstream and sub-prime lenders will survive, before regulators bring a firm hand down on the practice, writes Kirstie Redford.
More sub-prime lenders are striking deals with mainstream players, so when potential borrowers fail lending criteria, they are directed into their arms. But some in the industry feel the practice could mean consumers are not receiving best advice.
Barry Robson, managing director of Genesis, said: ‘The difference between sub-prime and mainstream customers is not black and white. Customers may be better off with other specialist lenders, rather than sub-prime lenders. This lack of choice makes you wonder how it will sit with the regulators. ‘
The Financial Services Authority’s regulations do not cover advice, so as far as it is concerned, there is nothing wrong with exclusive referrals.
Referrals also fall outside the Mortgage Code. Brad Baker, spokesperson for the Mortgage Code Compliance Board, said: ‘Lenders do not suggest the referral is the only solution and if they were to give such advice we would step in, but until that point, they are acting as an introducer, not an adviser.’
Kensington Mortgage Company has links with Newcastle BS, a number of estate agents and receives some business from Egg. Mortgages plc also has links with Newcastle BS, is the only sub-prime lender to get referrals from Paragon Home Loans, and is planning an exclusive connection with another building society.
Alistair Pate, general manager of marketing at Kensington, said: ‘Few people are strictly sub-prime lenders anymore. Like us, they deal with mid-prime and other specialist areas. Many customers would stop looking if they were turned down by a high street lender, but this way they are alerted to the fact they have a choice.’