MBE2013: H2B blinding brokers to sub-prime pickings
Speaking at the Mortgage Business Expo in London today Matt Gilmour, managing director of sub-prime lender Magellan Homeloans, said “adverse creditism” was causing brokers to still think of sub-prime as a toxic word and the cause of the mortgage crash.
He said: “Adverse creditism is a bit like being a lifeguard and not saving a person from drowning because they are fat. You are qualified so go and save them!”
Gilmour said too much reliance on low hanging fruit like Help to Buy applications was setting brokers up for a fall because a market based on government stimulus is not real.
He said: “Help to Buy is a terrible idea, a vote winner. We are dining out on a government-fuelled mortgage feast.”
Gilmour said the mortgage bubble we are currently in was fake and that brokers needed to consider what they were going to do “when the feast is over”.
Since its launch three months ago the sub-prime lender has experienced a modest start but not one which “would set the world on fire”.
It took six years for Magellan, with the full backing of the regulator, to bring its heavy adverse product back to the market but it needed more intermediary support to reach the market.
Magellan is not afraid to admit it is bringing sub-prime back and there are more borrowers that fall into this category than in 2007.
Gilmour said: “We know our customer exists because we have done our homework. But if [brokers] do not support us we will have no choice but to go down the route of business to consumer to get this product out there.”
Magellan’s rates can act as barrier for some brokers not comfortable or familiar with adverse lending products which Gilmour acknowledged, hinting that rates may soon come down.
He said: “Let’s talk about the elephant in the room. Our rates are LIBOR plus 8% which are only high if you have a choice. We are offering borrowers a bridge back to the high street.
“We are blazing a trail here – we are not a deposit-taking lender and the cost of funding is pretty horrendous.”
Gilmour said lowering that cost of funding is down to the intermediaries because rates will fall if the products are sold more widely.
He added: “There aren’t going to be any flyby nights coming into the market and our proposition has been scrutinised by the regulator. We don’t care how much adverse credit our customer has got – what we care about is how they got it.
“Our target market is not the bloke whose girlfriend has had a Jimmy Choo spree at the weekend nor the girlfriend whose boyfriend fills his super car with super unleaded. It’s the customer who has suffered from natural setbacks, such as redundancy, divorce, bereavement. As long as we’re happy it’s a non-recurring event we’ll give the customer another chance – why not?
“As long as they can demonstrate they have been on an even keel over the last 12 months then there is no reason why we wouldn’t lend – we don’t care about the past.
“You can buy sub-prime leads for 10-a-penny at the moment but the fact is we are the only show in town. All we need is proof of why they are in the circumstance they are in.
“It’s not a case of chucking a dart in the wall and hoping for the best or the dog ate my homework. Our product is a bridge back to the high street. Also, there’s no ERC so there’s not a chance of you stitching them up.
“We’ve put a product on the shelf for consumers but you will only know about it if you tell them.”