AfI defends lending policy

Robyn Hall

September 11, 2012

Yesterday Mortgage Introducer revealed Promise Solutions was offering borrowers unsecured loans up to £50,000 over 15 years at 14.9% APR to use as a deposit – effectively giving them 100% loan to value.

Promise launched the loan with an unamed “multi national conglomerate”.

A spokeswoman for Abbey for Intermediaries said: “We will accept an unsecured loan as the source for a deposit, provided the repayment of this loan is included in the affordability calculation, to ensure the customer is able to afford the repayment of both their mortgage and the loan.

“Customers intending to fund a mortgage in this way would need a well established and clean credit record. This is not a common borrowing strategy.”

And they added: “As a prudent lender, we continually review our lending criteria.”

The response from other lenders was somewhat cooler.

A spokeswoman for RBS said: “Unsecured personal loans are never acceptable as a source of deposit.

“The only exception is for armed forces personnel who are eligible for a Long Service Advance of Pay loan.

“Any loans outstanding or recently taken would be questioned and be taken into account within the affordability calculation.”

A spokeswoman for Nationwide said: “A deposit must come from the borrowers own resources, we would not allow the deposit to come from a loan because this means the client is taking on another debt.”

But brokers welcomed the move to push LTV boundaries.

Matthew Fleming-Duffy, principal at Berkshire-based IFA Wessex Investments, said he would be happy to advise his clients to take this product if it suited their needs and thought it would be perfect for first time buyers.

He said: “I think this is a good idea so long as it is implemented and managed well – it all comes down to affordability.”

And he added: “It would be TCF if it was marketed correctly, suited the needs of the client and was clearly explained, but I don’t think we should be radically promoting higher risk.

“If this product was available to the mainstream market it could be open to misuse but I think there would be a lot of demand for it as most lenders require a large deposit.”

Andy Frankish, director of new homes for Mortgage Advice Bureau, agreed affordability was a key issue.

He said: “This is something we do already and is a viable way of providing a client with a deposit if they can afford both the loan and mortgage repayments.”

Frankish explained that they offer this option for buyers of new builds, whereby the developer subsidises the interest rate on the repayments of the loan element.

He added: “Given the specialised nature of the product and the high risk it carries, I don’t think the market for unsecured deposits would be substantial because lenders don’t have the appetite for higher risk deals.”

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