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Non-prime mortgage lending products innovations and selections

Visitors came from a variety of sectors of the mortgage sector to debate innovative products and choices in the non-prime mortgage markets. Tweedy, the target group's marketing communications manager, began the debate with some observation of the specialty finance group. The mortgage markets are very busy and there is certainly room for innovations.

What will be the effects of the new administration on the mortgage and residential property market after the parliamentary elections? The regulatory challenge is both for the UK regulatory authority in relation to behaviour, equity and the regulatory part of the company, and for the European Mortgage Credit Directive, UK involvement in Europe and the implications of Europe for the UK.

Large MFIs do their work for the mains but there are a number of mortgage industry segments where there is a clear need for innovations. For example, individuals who can neither move because they have a pure interest mortgage, nor a negative loan - now an undersupplied industry in comparison to the pre-credit crisis when there were many non-prime gamblers.

Buy-to-Lease markets move from starch to starch. Share approvals are a rapidly expanding industry with many innovations in this area. Self-employment is an area where some specialized credit providers are playing a major role, but for certain kinds of self-employed it can be difficult to obtain a mortgage from a major commercial institution.

What will the sector do to promote the right to buy mortgages with mortgage option? High net assets are another interesting but niche-oriented one. He does not see the big four or five players competing in the big four or five banking niches, leaving room for the challengers, the large capitalised creditors and the smaller home loan and savings companies competing in small domestic and foreign countries.

So, the big issue is: How will this hypermarket proceed to service all this craving around the borders of the majorstream mortgage subprime mart? There was no one single entity covering all these disciplines and creditors have favoured those areas where they want to be.

We work in specialty, loan and home loans and are one of the few providers of financing to have come onto the markets in the last five years. Interest is there from other interested players who want to enter this particular part of the business, but it is hard as a new creditor.

However, more creditors are entering the buy-to-lease area, where the barriers may not be as high as on the downside area. Does regulatory action help to meet consumers' needs? Does the in-depth offer from creditors distort towards less heavily regulatory markets and is this a yardstick for the effectiveness of mortgage regulatory in the UK?

EZV worked with us to launch our product on the merchant world. During 2006/2007, loan repairs were a several billion Pounds volume activity. All we do is sell through mediators, but the mediators themselves have not quite hopped on the train as far as we might have expected. We' re dealing with the nets, and they want to make sure that it is a secure place for their brokers to work.

And there are other creditors who fill a gap like the bausparkassen - Prime is the buzzword where bankers don't really want to gamble. Not too many specialised creditors have existed, but this has definitely evolved over the last 12 to 18 month.

More and more mortgage creditors who have come to the end of their introduction business are now on a higher SVR and are fighting the reversal charge due to the new affordable pricing tests. Such groups were referred to as "mortgage prisoners" or mortgage abuse. Well, I think creditors are using regulations as an excuse. No.

Mains creditors do not do some of the things that they could do. There has been a great deal of fuss about mortgage abuse in the marketplace and we are trying to convince the FCA to amend its interpretations of the European Mortgage Credit Directive. It is still amazing to me that creditors do not want to loan to current borrower or provide them with sound mortgage product - parts of the mortgage markets are not used.

Hypothecary abuses involve the self-employed, contractor are a significant part of the business, persons over 50 years of age and those who may have had a small problem, but nothing big, i.e. not withdrawal or insolvency, but a failed bill here and there. This is Nigel Stockton, Head of Finance, nationwide:

The majority of large creditors are now giving brokers easy acces to them. Those organizations gain shares of the markets and gains without having to worry about more complicated cases, and if you are in those organizations, why should you? They do not intend to relax the credit rating requirements. There' s a great chance for clever creditors who can move around the knuckles of the big boys.

Actually, they're just establishing a prerogative for alternate creditors. And if a debtor wants a sub 50 percent interest rate - only that's non-prime? Three or four out of ten individuals whose cases require some work (through an agent or lender) to get to a location where they can take out a mortgage.

Does the brokerage network want to deal with more complicated cases? Are there fears among brokers and an added level of regulation risks associated with complexities? They are nervous about taking added risks among brokers, as is the case with creditors. Large brokers cannot bear the reputation risks that large financial institutions cannot, so there is a reluctance to limit themselves to them.

Formerly known as Packer, the specialized wholesaler agent bundles the more complicated demands. They can see transfers of stock releases, transfers of contractors, secure second load and bypasses. Mains mediators are very lucky to participate in Help to Buy, first purchasers, do-it-yourselfers, buy-to-let. In addition, agents can divide the fee and forward the case to a specialized wholesaler; the agent helps the customer do this.

Dependence on proxy commissions is one of the things that hampers innovations in the stock exchange liberalisation markets, as consultancy costs are the rule. One cannot be expected to do that for 30 bps, so we have a totally different compensation scheme for stock buy. The majority of clients who make investments in companies with equities will pay three or four visits to their brokers before making a final investment choice.

Bower Retirement Service, Andrea Rozario, chef de la direction, Bower Retirement Service : Releasing shares is labour-intensive for the consultant. There is still a reputation problem, and there is generally a confidence problem in the provision of finance as well. We can justify the charge, I think, because there is so much additional work involved in giving advice to a customer in comparison to a regular mortgage.

If they are not particularly well regarded, why should a consultant come to this sector, there is a concern about reputation in financials with PPI-requirements. While the amount you will be billed for PI (professional liability insurance) is hardly out of proportion to the number of cases you complain to the Finanzombudsman, PI still pays three or four times higher premium than regular mortgage loans.

Releasing capital involves fewer risks than any other part of the finance sector. This discussion went back to regulatory and distributive issues and the related technicalities. Mr Vanessa Owen pointed out that regulations mean the creation of distributing bins. This may not be the intent of regulating, but it is a fact.

At the same we have the possibility of releasing capital with the pension test and at the same have to talk about people's indebtedness and their pension provision. One is under capital market supervision and RDR, one is under mortgage supervision and MMR and then you also have mortgage loans.

General Manager, Council of Mortgage Lenders: A major catalyst for improving capital relief will be the recognition that it is related to pure interest and the end of the life - and you need to find a better way to switch between the two. Reflecting this, the issue of the reputations of providers of financial products and related activities has already been raised.

We have discussed what brokers and creditors want, but what do clients want? So I think the sector needs to look at itself and ask itself what they' re doing with that? is that innovations seem to be being orbited by those who want a fast dollar, and that is why consumer confidence in consumer finance isn't high.

At Castle Trust, one of our main tasks is the so-called inter-generational exchange trade. One thing landlords don't want to do is paying a conventional mortgage because they have just done to the end of that. As one of the issues for younger individuals is getting credit from students, they already have a big mortgage on them before they even think about taking out a mortgage.

As a result of regulatory action, creditors are taking action against pure interest rate mortgage loans, and they are now a miniscule part of the mortgage brokerage business, but the space was agreed that they could be a good upside. Economies of taking out loans from your mortgage provider are much more convincing than the economy of letting from a lessor.

I am sorry to say it, but regulations mean that the client has to decide to rent instead of just buy on an interest rate base. Interest - only you never pay back a penny, you have investment income taxes, you have much more security of ownership - what is so poisonous about interest rate mortgage? Smee: The issue for creditors is that they involve the next generations.

So when the borrower's boy shows up and says, "Why didn't you get my mother to settle her pure interest mortgage before she dies, then I would have had the ownership now and I would have been willing to set up the principal to disburse it" - this is the kind of thing that creditors want to avert.

You also want to prevent the unfortunate event of getting someone in old age who is possibly spiritually handicapped, no longer paying the mortgage and then being taken back. Regulations must set the limits, because unfortunately we are in a global environment where the consumer now wants something. In the past, I ran a self-destruct mortgage book that had a slightly higher failure ratio, but 97 percent of them never had backlogs, so we have to refuse 97 percent of humans their right to protection of the very highest 3 percent of debtors.

Still we only make interest, at any ages, but it is up to the client what he tries to do and what his policy is; and we have no problems with the regulatory authority. By releasing capital securely and recognizing that there are risk, we control it. There'?s a possibility for the expert.

Well, we're seeing a massive amount of money coming into the economy. Currently we are starting a trial for two new creditors with innovating product lines on the outskirts of the primary stream markets. The reluctance of major creditors to take action offers a great chance for new creditors to enter the markets with good product and idea concepts.

In my opinion, regulations tend to make up for innovations. The regulatory authority, for example, is gaining ground in the expanding peer-to-peer segment and this segment is performing better than the regulatory authority. There are some great things out there and there will always be new creditors entering the game.

What happens then, when it gets to the order of magnitude, is that those who lend to the mains begin to buy into it, buy it or copy it, and I see that this tendency continues. Obviously there is a need for all kinds of special loans, although the magnitude of this need is uncertain and immeasurable. Mains creditors do not want to address what is leaving a void that new creditors can fill as well as smaller actors such as challengers and local bausparkassen.

The majority of mortgage brokers are generalists who are mainly active in the primary stream market and are unlikely to switch to specialised areas such as shareholding. This is the responsibility of the technical consultants and wholesalers. It has given the sector rigour, oversight and value, but at the same times it can limit it.

Opportunities for expansion exist in the various areas of expertise and there is scope for new creditors, which we are already seeing this year in the area of buy-to-lease and securitised lending.

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