by Mark Johnston
Sub-Prime Mortgages Make a Return to the Market.
It seems that in the wake of the funding for lending scheme sub-prime mortgages are once again re-emerging.
Sub-prime mortgages were extremely common before the credit crunch but disappeared completely by 2008. These particular mortgages were widely blamed by many as the cause of the financial crisis.
Andrew Hagger, a financial commentator states “Sub-prime mortgages caused major issues for borrowers in the run up to the banking crisis and it’s worrying that this form of lending is starting to raise its head again just as the mortgage market is gaining momentum.”
There was irresponsible lending in the past, and more importantly, irresponsible borrowing, but some financial experts feel that the landscape has changed fundamentally since then.
Borrowers with an adverse credit record now have the chance, once again, to get a mortgage thanks to new lender Magellan Homeloans, the company is owned by Mars Capital Finance.
The new lender has started handing out loans to borrowers with adverse credit records at a cost of 8.55 per cent.
These loans are available to people who have experienced a one off life event, such as bankruptcy, redundancy or bereavement, which has damaged their credit scores.
But mortgages will only be available to those who meet Magellan’s requirements. For example, potential customers will need to have had a clean credit record for the last 12 months and be able to explain what led to the black spot on their financial history.
Borrowers will also be will be barred from taking a mortgage if there is any evidence they are depending on short-term credit, such as payday loans.
Magellan Homeloans is offering five different types of mortgage. Three are available with loan to value (LTV) rates of 65 per cent, 70 per cent and 75 per cent for purchase or remortgage with debt consolidation and two are set at 70 per cent and 75 per cent loan to value (LTV) for purchase or remortgage without debt consolidation.
It is also worth noting that Magellan has confirmed that it is not drawing money from Funding for Lending to fund its loans.
All of these deals come with a 1.5 per cent completion fee at a minimum of £995. However early repayments are definitely not allowed.
Clive Wilson, sales director at Magellan, says that the products are straightforward and they will only be offered to those who have strenuously tested.
Some industry experts have suggested that as this is the first lender to launch in this space in recent years, it will be interesting to see if others will follow!
But,Ian McGrail, director of mortgage advisers, First Mortgage, said: ‘It is good to have lenders that take a fair view and are willing to consider a “blip” but we do not want to see this widening to open up reckless lending”
It is therefore hoped that tighter controls from the financial conduct authority (FCA) and the introduction of the mortgage market review will limit the re-emergence of sub-prime over the coming years so it opens lending up without becoming reckless again.
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