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City watchdog probes money lenders over high risk mortgages
The number of banks and mortgage brokers lending to people with a bad credit ratings has rocketed. This has prompted the city watchdog to do some digging around to make sure money-lenders are playing by the rules.
Author: Bridget Carter
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A 'subprime borrower' is a person with a bad credit rating. This can range from someone who has missed a few credit card payments to someone who has been declared bankrupt. For banks and mortgage brokers, these types of customers are lucrative because the risk attached to them is justification for charging sky high interest rates. These customers are so lucrative that the market for them is worth £30 bn a year and many new companies are getting into the market. Figures show that the number of mortgages approved in May for new homes went from over 67,000 in April to more than 81,000 one month later in May. Analysts are guessing that those figures are expected to keep on rising.
Investment banks like Deutsche, West LB and Investec are some of the newer players in the subprime market while Lehman, GMAC and Merill Lynch have been in the game for some time.
So because the number of investment banks and brokers lending to these types of people has risen so sharply in recent times, with many new companies getting involved, the Financial Services Authority has its suspicions about what is happening in this part of the money-lending sector and is keeping a close eye on things to make sure that what is going on is all above board.
An FSA spokesperson says the area that the FSA is mostly looking at is whether mortgage advisers are taking the right steps when it comes to getting all the correct information for the customer. Gaining the correct information will help them to gauge whether or not that person is capable to keeping up the mortgage repayments.
Your home may be repossessed if you do not keep up your repayments on a mortgage or any debt secured on it. Security by way of a charge on your home may be required.