Lenders are being urged to taper discounts on mortgages in light of the current economic climate.
Specialist lender CHL Mortgages says offering deeply discounted mortgage products at this time may not be treating customers fairly (TCF) and represents poor risk management.
The firm argues the greater the discount, the greater the “payment shock” for the customer when the special rate ends, pointing out 1.4 million customers are expected to come to the end of their deals in 2008.
Jannie Vermeulen, head of credit risk at CHL Mortgages, says: “The problem with discounted products, especially those that are deeply discounted, is the assumptions that come with them.
“These products are designed under the notion that customers can remortgage at the end of the discounted period when their property is worth more.
“The reasons behind these products are understandable – competition, sales targets, affordability and innovation.
“However, one must wonder if treating customers fairly initiatives are being met if a borrower reaches the end of the discounted rate and experiences a 20-40% mortgage payment increase, at a time when they also have less chance of securing another mortgage.
“In this sense we would urge all risk executives, industry bodies and regulatory authorities to consider the depth of the discount along with its consequences.”
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