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Non-conformist

Cheltenham & Gloucester&#39s move into the non-conforming mortgage market has

sparked speculation that the lender may be gearing up for a shift to

sub-prime lending.

Coming hot on the heels of Halifax subsidiary Birmingham Midshires&#39

impending push into the adverse-credit sector, it seems to be a question of

when rather than if the mainstream players introduce impaired-credit ranges.

But C&G head of communications Peter Mounty denies the lender has plans to

enter the sub-prime market and says its recent move is an extension of a

long-standing policy of judging every case on its own merits.

Mounty says: “We thought there was a gap in the market where a lot of C&G

borrowers would benefit from a non-standard approach. This really is a

logical progression of our existing attitude to lending – much less on

rule of thumb criteria but tailored to the individual. We have just

formalised our commonsense view.”

C&G has introduced two mortgages designed to retain the type of borrower

which it would otherwise be forced to turn away. One loan allows customers

to borrow up to 100 per cent while the other is a self-certification loan

aimed at the self-employed. Both are fixed at 7.49 per cent for two years,

after which C&G will allow good payers to switch to a loan from its

mainstream range.

The new loans are being piloted for three months through IFAs and C&G&#39s

210branch network and will be extended indefinitely if the trial proves a

success.

Mounty says: “If the pilot works, all that will happen is we will continue

to lend in this market. Departing from our lending norm is not without

risks but in this case the degree of risk is relatively low and so we are

happy to stay where we are.”

Although C&G may not have immediate plans for a major shift in lending

strategy, it has made an unusual move by offering non-conforming products

under its own brand name. Two of its closest competitors, Nationwide and

Britannia, lend to the self-employed through their respective subsidiaries,

UCB Home Loans and Verso. Britannia also recently expanded this strategy by

paying £55m for Platform Home Loans.

Mounty says: “If you go into sub-prime, one of the main options is to do

it through a subsidiary in order to preserve the mainstream brand. We do

not believe this move has taken us into this area so we do not feel the

need to differentiate ourselves from our approach to non-standard lending.”

But Mounty believes mainstream players will increasingly begin dipping a

toe into markets that were once the domain of little-known specialist

lenders charging excessive rates. With margins being squeezed out of

existence, he says mortgage providers are beginning to relax both their

lending criteria and attitude towards brand protection.

“As mainstream lenders decide there is a middle ground between sub-prime

and standard lending, we will see more and more adopt our kind of approach

– probably under their own brand names. There is not going to be a flood

into the market although no UK lender can afford to be complacent or

unaware of what their competitors are doing,” he says.

While Mounty says C&G is unlikely to go down the full sub-prime route – no

matter how much of a success its non-conforming range may prove to be – he

acknowledges that part of its motivation for entering the non-standard

market is to assess demand in this area. Although the 7.49 per cent rate

C&G is offering on both its new loans is not market-leading, borrowers pay

no valuation fee, no mortgage indemnity premium and there is no tied

insurance.

Mounty says C&G has no particular targets or expectations for the products

but clearly hopes the minimal charges will appeal to a significant number

of borrowers.

He says: “What is crucial to this is that we can manage demand – in terms

of administering and handling the loans at point of sale – but our managers

are used to making these sorts of decisions because of our existing lending

policy. For the future, we will continue to listen to the market while

ensuring that we maintain our standards and speed of service.”

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