Over half of the UK’s repossession orders are being brought by sub-prime lenders, according to a BBC report. These lenders cater for borrowers with poor credit histories and account for only 6% of the total mortgage market. Radio Five Live’s Wake Up To Money programme conducted an investigation of 1,200 cases going through 18 County Courts in January of this year and discovered that more than 10% were brought by two sub-prime lenders owned by US investment bank Lehman Brothers. 148 cases named the two branches, Southern Pacific Mortgage Limited or SPML and Preferred Mortgages, whilst two of the UK’s biggest sub-prime lenders, GE Money and GMAC-RFC, appeared in over 100 hearings.
All the mortgage lenders involved stressed the increased probability of their customer base to default on payments. A spokesman for GMAC said: ‘It should come as no surprise that those lenders dealing with borrowers with past credit problems are likely to have to deal with more cases of default amongst their borrowers. Comparing lenders like GMAC-RFC with high street lenders is a bit like comparing apples and pears.’
Whilst acknowledging the truth of this statement, experts still assert that the percentage is disproportionately high considering the tiny market share that sub-prime lenders control. However, the cases in the sample are possession claims hearings rather than actual repossessions and the sub-prime lenders in question are keen to point out that the majority of these hearings are resolved before repossession becomes unavoidable. ‘The figures are based on possession claims hearings and are therefore not representative of actual repossessions, which are a lot lower,’ said a spokesman for SPML and Preferred. ‘Of proceedings started, where solicitors become involved, five out of six are resolved without having recourse to repossession.’ The recently nationalised Northern Rock was one of the most prominent of the mainstream insurers in the sample along with Bradford and Bingley and Britannia.
This is not the first report to cast sub-prime lenders in a damning light. In January of last year the Citizens Advice Bureau conducted a study entitled Set Up To Fail, which concluded that the behaviour of this group of lenders was aggressive and irresponsible and led to a steep increase in mortgage arrears and repossessions.
Citizens Advice Chief Executive David Harker said: ‘The cavalier behaviour of some brokers and sub-prime lenders is seriously undermining home ownership and hitting the most vulnerable borrowers hardest. Our research suggests that many aspiring home owners have been mis-sold unsuitable and costly home loans that are doomed to fail from the start.’
The report found that many sub-prime lenders were needlessly inflexible and hard-headed in negotiating possible solutions with their borrowers. Harker went on to say: ‘Many sub-prime lenders are flouting the rules on responsible lending by granting loans when it’s clear the borrower will not be able to afford to repay it from the very outset, then getting tough immediately things go wrong. Far from providing housing security and a valuable asset, home ownership has proved a fast track to debt and homelessness for many vulnerable borrowers on low incomes.’
