According to reports, Masthaven is to start catering for borrowers who don’t have a shiny credit history while lenders like Pepper offers products primarily for borrowers who have had financial issues in the past.
The term itself clearly causes concern, given that it was largely blamed for the economic crash which began ten years ago this year, but this market is now developing again.
Given recent history it is understandable if brokers are hesitant to start working again in this area.
So how can brokers protect themselves this time round?
- Recognise the mistakes of the past. The mortgage broker market has always been particularly conscientious and most of the issues surround lax lending was not a result of anything the intermediary did. However, it is still important to look at how things operated back then and what changes need to be made.
- Be aware of your new role following the Mortgage Market Review (MMR) and Mortgage Credit Directive. Yes, under MMR rules the responsibility for assessing affordability lies ultimately with the mortgage lender, but the requirements on brokers in terms of packaging the case and collecting the necessary information has increased significantly. Make sure you are conducting as thorough a fact find as possible.
- Remember to stress test. Affordability is not just an issue for the present but for the future too. It’s essential that you are comfortable that the borrower will not fall into financial hardship if rates rise in two or three years. It’s important to protect your own reputation and always consider the risk against the reward.
Subprime in itself was never a bad thing. Indeed, it is right that the market should look to cater for borrowers of different circumstances if they can afford it.
It was how subprime was offered and the lackadaisical approach to it in some corners of the industry that caused the problems.
Let’s make sure we work together to prevent that happening again this time round.