Around a fifth of all applicants are refused mortgages by traditional lenders. Simon Biddle , Marke...
Around a fifth of all applicants are refused mortgages by traditional lenders. Simon Biddle, Marketing Communications Manager of specialist mortgage provider, Preferred Mortgages, analyses the alternatives which are available to brokers and IFAs, and predicts a boom for the sub prime market, particularly in the face of a recession.
With virtually the whole of Europe on the brink of recession potential homebuyers could in the future find themselves out of work, seeking alternative employment, or perhaps for some, branching out into self-employment.
The knock-on effect is more mortgage applicants will be turned down by traditional High Street lenders, forcing would them to look elsewhere for financial help. This means that the 20% of applicants turned down by traditional lenders is set to rise even higher in 2002. A gloomy picture, but not for brokers or IFAs.
Other than being accepted for a mortgage by a traditional High Street lender, there are only two alternative routes to purchasing a home. One is the back street lender, who will lend you money at a price you can ill-afford. The other option involves going through a 'specialist' mortgage lender - known in the industry as a non-conformist or sub prime mortgage lenders.
The benefit of using specialist lenders is they can provide more choice to your clients. Admittedly, for the customer, the price is higher than a standard traditional lender, but they have a choice of lenders in a growing and successful sector of the mortgage market.
Many traditional lenders use a system of computerised credit scoring, whereby potential homebuyers are either awarded a mortgage or not. This system would not work for specialist mortgage lenders, who take a bespoke view of each and every case history; and only decide on the merits of cases following an interview.
Because of this, they are able to provide proper consideration to a whole raft of financial problems. These include finding out whether a customer has County Court Judgements (CCJ's) awarded against them, has a history of arrears, is self-employed, can't afford to keep up with their mortgage payments, is bankrupt, or is struggling financially after setting up in business.
Each one of these issues is likely to lead to a mortgage applicant being turned down if they go through the traditional route of credit scoring. However, with bespoke adjudication, it could still be possible to obtain a mortgage. This can also apply to the self-employed who have not been trading long enough to meet many lenders requirements.
Although some brokers and IFAs still seem to ghettoise the specialist market, it's worth mentioning that a handful of traditional lenders have accepted the alternative market. To paraphrase - 'if you can't beat them, join them' - they have launched their own specialist sub prime loans, time will tell how successful they will be.
Set against a backdrop of financial instability, the sub-prime market is set to rise. Why not realise some of this potential for your business - strike whilst the iron is hot. This is an opportunity you simply cannot afford to miss.
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