Last week at a conference by the Association of Short Term Lenders (ASTL), the Financial Conduct Authority’s (FCA) head of mortgages, Lynda Blackwell, said the regulator was keeping a close eye on the rise of sub-prime lenders in the market.
Despite the FCA’s concern, opinion remains divided on the value and justification of sub-prime lenders in the current market.
A poll run by Mortgage Solutions found that only 22% of readers felt a rise in sub-prime lenders signaled a race to the bottom, illustrating concern about lending to those with poor credit history was fairly low. A majority vote of 42% did not think an increase in sub-prime lenders was a concern, while 36% felt it was too early to say.
Rowan Frayling, mortgage and protection specialist at J Finance, believed the reason for the increase in such lenders was justified because there was an understandable niche in the market which needed to be accommodated.
Frayling added that despite there being reason for them to exist, customers must be cautious as they must be aware that they come to these lenders with a bad credit history and should act accordingly.
“I don’t think we can bar these people from being able to access a mortgage though I do worry about lenders who are blasé with their terms and conditions. Allowing someone with one or two CCJs is understandable but caution is to be exercised to a certain extent.”
However, Chris Hall, mortgage adviser at Capricorn Financial Consultancy, doesn’t think there should be space in the market for sub-prime lenders and is concerned the rise is detrimental to the market as it was one of the key factors that led to the financial crash in 2008.
He said: “Yes, you’re giving them the opportunity to purchase a home but given they’ve had financial issues before, are you not just exacerbating the situation?
“Before 2008 you had lenders lending out to anyone, very few checks were done and the products were awful. Very poor products with very poor advice- it’s just a recipe for disaster.”
Hall says he “just isn’t a fan of sub-prime lenders” adding if someone has bad credit then they should aim to resolve that first before buying a house.
“Home-ownership isn’t for everyone and if you have a problem with managing finances then it’s not something for you.”
Both Hall and Frayling agreed individuals shouldn’t be denied a loan if they have experienced financial hardship in the past and have since rectified their poor financial history and can suitably demonstrate it.
Hall said: “There are some lenders that never let you borrow from them if you have ever been bankrupt and I think that is the wrong attitude. If you have been discharged and there has been a period of time where you have manged to get things back on track then why not?”