Self-cert mortgages are clinging on to life, as 0.7% of brokers’ business in Q2 this year, while sub-prime mortgages account for 1.8% of advisers’ business, according to a survey by Paragon Mortgages.
Surprisingly, despite being well down on Q1 2007, when sub-prime made up 7.2% of brokers’ business, the sub-prime sector has rebounded slightly since its low of just 0.4% in Q2 last year.
However, Rob Jupp, director at Savills Lending Solutions, pointed out that there is a still a problem with the precise definition of sub-prime. He said: “True sub-prime is still entirely dead but there has been a gradual improvement with near prime products recently with lenders re-entering the market.”
Richard Adams, of the Stonebridge Group, agreed that the description sub-prime is used now to describe borrowers who are not really sub-prime customers, such as those with a missed credit card payment.
He added: “There are some very mild sub-prime products coming back to the market and that is a good sign for customers, if surprising. But I want a return to sub-prime the way it was 20 years ago, with low LTVs and high rates. Credit-impaired borrowers should pay a premium, and lenders should be rewarded for taking the risk.”
Self-cert business has continued to fall since Paragon began tracking it in Q1 2007, when it was 13% of mortgage brokers’ business. The product is set to be killed off by the FSA’s proposals requiring lenders to verify the income of all borrowers and to impose strict affordability assessments, as part of the Mortgage Market Review.
Melanie Bien, director of Private Finance, said: “For many people, self-cert filled a genuine need, and the FSA’s proposals will make it much more difficult for them to find a mortgage. Brokers can’t do much about it, because the products just aren’t there.
“Yet, with more people moving to flexible hours and setting up their own businesses, I think it is terribly short-sighted of the regulator and it is going to cause a lot of problems. Self-cert makes up such a segment of the market and these people haven’t just disappeared.”
