Overall, there are enough acquisitions and new launches around to suggest that there is still considerable confidence in the UK subprime market despite the recent problems in the US. Recently for example, there has been a steady stream of prime lenders such as Alliance & Leicester and Northern Rock making the move across.
Elsewhere, judging by the size of its marketing budget, Freedom Lending should make an aggressive start following its reincarnation at the end of this month and post-merger, we could also see a strong push from The Mortgage Works and UCB.
All this points to continuing growth and competition in the sector.
From a consumer point of view, the benefits of the market’s growth are clear, particularly when it comes to the products. Overhanging ERCs and punitive higher lending charges are much less prevalent. Improved underwriting and credit scoring allow a more accurate match between risk and rate, meaning borrowers can get a more tailor-made mortgage deal. Other technologies, in what is probably the most innovative of mortgage sectors, have also improved price and service.
These improvements also help brokers by making the process of writing sub prime business a lot more efficient and cost-effective.
It is good to see that Charcol is now offering fee-free advice to borrowers with adverse credit through its direct channel. L&C has always offered fee-free advice to clients with credit problems and welcomes Charcol’s move – let us hope that others follow suit.
Unfortunately, many brokers are not reflecting the changes in the market by reassessing the fees they charge. Some still charge fees of 2-3 per cent or more on a case purely because some credit problems exist. They are directly benefiting from improvements in the sector while they are maintain-ing the old notion that sub-prime cases take a lot more time to arrange, in order to justify a high fee. This is an outdated stereotype. These firms are hitting people with a hefty fee who can least afford it, which usually ends up being added to their loan.
Brokers can help their sub-prime clients by getting them as good a rate as possible and putting them on the road to prime borrowing. Charging inflated fees just does not sit with this.
Once more people release they can get quality advice and a good mortgage deal without having to pay a rip-off fee, many brokers may have to rethink their strategy.
James Cotton is a mortgage specialist with London & Country Mortgages.