Charity Fears A Sub-Prime Crisis Is Coming To The UK
The sub-prime crisis is taking root in the UK, according to Citizens Advice (CA). They say that aggressive mortgage lenders are rushing to repossess thousands or properties.
Those firms that helped people get mortgages when bigger lenders refused are now taking a hard line when those customers fall behind with payments. Those with the biggest difficulties in making payments are being hit hardest - by the very firms who specialise in 'helping' them get mortgages in the first place.
When the same kind of sub-prime mortgage market collapsed in the US it was the start of the global credit crunch that has left banks reeling, refusing to lend to each other, and with huge losses.
According to some analysts repossessions in the UK could reach 70,000 next year, which would be their highest level since 1991.
The Citizens Advice say that finance companies have made the situation much worse by their sales of home loans that had failure written all over them.
Conservative leader David Cameron called on lenders to be socially responsible and give assistance to home buyers who are struggling and falling into arrears. He has particular concerns for the 1.4m borrowers who are coming off cheap fixed rate deals in the next 12 months, and called for lenders to look for ways to reduce the impact of the increase in monthly repayments these borrowers will face.
The CA looked at over a thousand cases and found that the comfort of home ownership is turning into a nightmare for some. Over three quarters of a million people have missed at least one mortgage or secured loan repayment in the last year. The CA's report discovered that advice from brokers has been dubious, and, together with irresponsible lending and aggressive arrears collection, this is pushing up repossessions.
Sub-prime lenders have lent money to people on low incomes or with less than pure credit histories who in reality could not afford to repay their loan, especially when the going got tougher.
CA chief executive David Harker said: "Our research suggests that many aspiring home owners have been mis-sold unsuitable and costly loans that are doomed to fail from the start. 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 when 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."
The apparent caring approach of lenders in the buying process disappears in even the smallest case of arrears. The CA feels that the lenders are not treating customer fairly - which is law - and the rules need to be enforced, and that court action for repossession should only be used as a last resort.
CML chief Michael Coogan felt that sub-prime lenders were not rushing into repossession. He said: "This report is in no way typical of the vast majority of cases where lenders work constructively with borrowers to get them over periods of financial difficulty and keep them in their homes."
Published on December 14, 2007
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