Mortgage News
Sub-prime borrowers still elephant in the room – Magellan
It seems strange that, with sub-prime lending having been condemned as the cause of the credit crunch, very little has been done about the many thousands of borrowers with impaired credit records who are effectively locked-out of the UK mortgage market.
It’s almost as if ignoring them will make the problem go away.
But the problem hasn’t gone away. Anyone with anything more than a very minor credit blemish (i.e. ‘near prime’ borrowers) has few options but to either give-up the idea of getting a mortgage, or become prey to the growing number of payday loan and other high cost credit providers who are willing to consider their needs.
In fact, the unwillingness of most high street lenders to consider applications from borrowers with blemished credit records has created a perfect environment for less scrupulous lenders to thrive.
Some will argue that borrowers with an impaired credit record have no right to a mortgage; that their past misdemeanours means they have forfeited their right to further finance.
But this fatuous argument doesn’t really stand-up to close scrutiny. For many thousands of borrowers, the factors that gave rise to their financial difficulties were often beyond their control: redundancy or illness, for example. And for many others a life event such as a matrimonial breakup proved to be the straw that broke the camels back.
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In an ideal world, everyone would manage their finances prudently and never lose control – but we don’t live in a perfect world.
Clearly, from a lending perspective, the challenge is to discriminate between those borrowers who have hit hard times and deserve a second chance and those habitual debtors who are happy to borrow money with no real regard for how they are going to pay it back. The former deserve help; the latter need guidance.
What we can’t do, however, is simply turn our collective backs as lenders on anyone with a tarnished credit record and say we’re not willing to help. Both ‘sub-prime’ and ‘impaired credit’ may well be words that lenders would prefer not to have to hear again, but it’s an issue that isn’t going to go away and can’t be swept under the carpet.
The lending industry has to find responsible ways to help those borrowers who don’t deserve to be ostracised from the market.
Matt Gilmour is managing director at Magellan Homeloans