As competition means lenders struggle to make significant profits, increasing numbers are eyeing up ...
As competition means lenders struggle to make significant profits, increasing numbers are eyeing up the sub-prime market as a potential earner.
Birmingham Midshires leads the pack with an announcement outlining its intention to branch into the sub-prime market by the autumn. Experts suggest the product launched will reduce the interest rate of the loan each year over four years.
Lee Smith, Birmingham Midshires head of communications, says the company sees a significant gap in the market and has "big plans" in this area, although he is reluctant to outline details of the proposed product.
"Birmingham Midshires is recruiting key players into the business with a view to development in the sub-prime mortgage market. We would like to bring fairness and a focus on the consumer into the sub-prime market."
Smith says the company plans to launch a sub-prime mortgage product in the autumn. He says it is too early to comment on how rates and structure will differ from the mortgage packages already offered by Birmingham Midshires.
Late last year Birmingham Midshires launched a series of packages designed to make the company the specialist lender with in the Halifax Group.
"The Self Certification, Buy to Let and Expatriate packages have been very successful and it is now time for us to expand into other business."
Charcol technical manager Ray Boulger believes the Birmingham Midshires product will be a good option for many borrowers, "so long as the initial rate is affordable".
Charcol itself is another another institution that sees potential in the sub-prime market. While the company has never previously promoted its activity in the sub-prime market, Boulger says the company has recently arranged a number of exclusive deals with sub-prime lenders.
"Five years ago the sub-prime market was an area we were not interested in but now there are several respectable lenders in this market," Boulger says.
He says the interest in the sub-prime arena has encouraged leniency in sub-prime mortgage deals.
For instance Charcol has recently negotiated a deal with several lenders not to charge a procurement fee of more than 1% on sub-prime mortgages.
Redemption and penalty periods have also been relaxed so long as borrowers abide by repayment schedules.
Boulger says those with adverse credit history need to investigate their borrowing options thoroughly.
"Because of the large number of brokers specialising in the sub-prime market it is very easy for borrowers to get a sub-prime mortgage without actually needing one.
"We are keen to make people aware that just because they have got adverse credit they don't necessarily need a sub-prime mortgage."
He says a knowledge of what the lenders will consider, beyond their advertised criteria, is essential.
Details of the new Charcol sub-prime product to follow...
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