My opinion is that mortgage lenders faced a significant drop in their profits following the sudden increase in property prices as first-time buyers could not afford a mortgage based on their income. Incomes clearly did not follow in line with the increase of property and as such income multiples became redundant. Three, Four or even five times income was not enough to allow people to get on the housing ladder. Even existing homeowners faced a problem of sorts as they ran up huge debts in this era of easy credit and as such had a situation whereby they were equity rich due to aforementioned property increases and yet struggling to meet debt repayments as their income was not sufficient to allow them a standard of living.
This therefore meant remortgages were harder to come by as the income versus expenditure meant they had little disposable income for the lender to provide them with a mortgage.
We now know that the banking industry is greedy and less mortgages meant less money.
The solution was to invent a product whereby the lenders could grant mortgages to people thus ensuring they made a healthy profit year on year. Brokers were given carte blanche to submit mortgage applications with inflated details. The lenders would not check the information provided as had they had the chances are that in many cases the loan would not have been granted. As much as the brokers were given free reign to inflate incomes then so too was the canny customer.
Now things have taken a drastic turn for the worse we see more brokers being fined, banned and imprisoned due to the above. I am only too aware of the broker’s complicity in such a thing and undoubtedly the guilty are to be punished as they have committed a fraudulent offence.
However, why is no punishment for this meted out to the mortgage lender, the very company that has released the money to the clients? The broker has not obtained the funds for the client. Indeed, it is the lender that has been negligent in placing its trust in somebody that is an intermediary only and not an employee of the lender. In what other industry or walk of life would you take the word of a stranger?
The lender does not care. They obtained a mortgage and no doubt profited allowing its employees to partake in large performance related bonuses. Now we are seeing a situation whereby a large number of borrowers have to pay standard variable rates through no fault of their own. The lenders have caused the credit crunch through mismanagement and being overrun with greed.
However, the lender likes people to pay SVR as it obviously makes them more money month after month though charging a higher interest rate. Even if the homeowner is forced to have their property repossessed, then again this is of no concern to lenders, they will get their money back through auction and being able to chase the borrower for any outstanding monies. It is a win-win situation for the lender. In conclusion, the brokers and borrowers who seek to obtain funds through deception should rightfully be punished. I am however of the opinion that the lenders knew what they were doing when bringing out this fast track product and had their reasons for doing so, they therefore should also be punished accordingly.
I am only too aware of a similar situation with endowment sales, whereby the insurance companies and their representatives would come and sell their products to brokers, singing from the rooftops about amazing performances and results.
I have plenty of literature in support of this. The products were then sold through IFAs earning the insurance companies the funds they required. Then what happens when the “amazing” endowments fail to perform, who gets the blame for that and the complaints – it’s not the fund managers who have mismanaged the monies, it’s not the life assurance companies that invented a product that does not work. It is the IFA who was fed enough propaganda to be taken in and then consequently feeds this down to the clients.
At some point the companies responsible for the mess they cause should be held accountable. It is not right that mortgage lenders can invent something so fundamentally open to misuse that they can absolve themselves of any responsibility. fast track was manufactured for a reason, and that reason was for greed.
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