I come across many excuses for avoiding this sector, here are the top five:
1) It’s too much like hard work. Advising borrowers with adverse credit records takes twice as long as arranging mortgages for borrowers requiring prime deals.
Well, the truth is that the advise bit doesn’t take any longer than giving advice on prime mortgages but, admittedly, there may be a bit more paper gathering involved.
A broker’s input is exactly the same as for any mortgage – providing professional advice.
2) Sub-prime deals don’t pay proc fees like they used to.
In the days before the credit crunch, proc fees on sub-prime deals were two, three or even four times as much as standard mortgages. But these days there’s virtually no difference between sub-prime and prime mortgage procuration fees, so what’s the point?
The point is that sub-prime represents a virtually untapped additional income stream and although the mortgage market is showing signs of recovery, volumes are nowhere near their pre-credit crunch heights.
3) What about the reputational risk? – it’s an open invitation for claims companies to target your business – isn’t it?
If advised correctly, sub-prime represents no greater risk than any other type of mortgage sale. Brokers are subject to exactly the same rules and have to comply with the same regulations as other mortgages.
If all the paperwork is in place and the advice can be correctly evidenced, there’s no greater risk than with buy-to-let, interest-only or any other category of lending.
4) It’s morally wrong to recommend mortgages to borrowers with an adverse credit record.
Just because someone has experienced a financial wobble doesn’t mean they should be excluded from the mortgage market for ever. That would be like saying picking-up a speeding fine means you should never be allowed to drive again.
Why kick a potential deal into the long grass for someone who has suffered a one-off setback (possibly through no fault of their own) and who has worked hard to get back on top of their financial affairs?
5) The price is too high. How can a broker honestly recommend a mortgage rate of 8% or more?
There’s no point comparing mortgage rates against deals that are unavailable to sub-prime borrowers. Sub 2% deals are all well and good if you’re a prime borrower with a squeaky clean credit record and 40% deposit.
Rates upwards of 8% are higher than most ‘standard’ mortgages, but lower than many other forms of finance. You have to consider what’s available to your client.
Matt Gilmour is managing director at Magellan Homeloans
