Where now for non-conforming borrowers?

It now seems like a lifetime ago but some former marketing, or more to the point statistic, from the now defunct Mortgages PLC used to suggest that one in five borrowers were classed as non-conforming. That figure still sits in my mind. Obviously this was quite some time ago and it was certainly pre credit crunch but it’s difficult to get that figure out of my head especially when comparing it to where the market is now. I mean if it was one in five three years ago – or even close to that, and the past couple of years have made better memories than mine a little clouded – what might that statistic look like in current economic conditions? My guess is - and just to clarify this is my own perception and very much a wet finger in the air gauge  - this figure must be at least two in five, maybe even more.

 

So where might these vast numbers of now non-conforming borrowers get a mortgage now? Choice for these potential borrowers has been very limited for some time but following the recent and sad decision from Beacon Homeloans to cease all new lending as it waits for its funding line to be renewed, this choice has dwindled even further. 

 

Looking at the Beacon situation closer it’s difficult to answer how and why it can’t secure the levels of funding it needs. One thing is for sure, with the talented team there, that it won’t have been for the want of trying. Looking from the outside it was writing significant levels of good quality, low risk business with healthy margins. It’s almost criminal that funding is not currently available to allow the lender to carry on servicing the needs of these thousands of borrowers. That doesn’t even take into account the packagers and brokers who will also suffer as a result.

 

There is now a much greater chance that these non-conforming borrowers – which could potentially incorporate someone with an otherwise unblemished record except perhaps for a small default – could be forced into the hands of back-street lenders. In particular how about the self employed? How are they going to cope in a market with almost no choice and a regulator that is still “in discussion” as to how to deal with them? 

 

With FSA proposals currently in place to scrap self-cert, as announced in the Mortgage Market Review last month, there are naturally major doubts over whether this is a product that will continue to be offered and if it is, in what form it might take. Of course this is an area that Platform – one of the last self-cert lenders operating in the market – has also recently had to pull out of. It did so with the telling comment: "The FSA’s review makes it clear that continuing to offer self-cert in its current format is unfeasible. We understand the regulator’s concerns about income verification and support its aim to improve transparency in the sector."

 

Like many lenders one imagines that Platform will be looking to develop a new product to cater for the needs of self-employed people while complying  with regulatory guidelines. I wonder though how long will it take for the FSA to clarify exactly what this entails? As with many things regulatory, unfortunately I can only imagine that this will be later rather than sooner. If so then surely this flies in the face of all ‘treating customers fairly’ principles. Let’s all agree that there is no doubting of the genuine need for such a product. As we, as a society continue to encourage entrepreneurialism, we also create huge obstacles for them to overcome in terms of taxation and borrowing requirements.

 

Unfortunately I don’t have all the answers to the questions posed but the first step must be for the FSA to work closely with lenders to find an answer to support the needs of those self employed people and those with non standard borrowing requirements. It can’t be a quick fix but action must be taken swiftly in order to broaden the choice of products to this very significant proportion of the country.