Citizens Advice critices lending actvities

The charity Citizens Advice has issued a report that criticises sub-prime mortgage lenders in the UK and suggests that their activities could prompt a sub-prime crisis in the UK that matches that of the US.

The report, called ‘Set up to fail’, tells how Citizens Advice believe that irresponsible brokers and mortgage lenders have given dubious advice and untoward encouragement to homebuyers, including brokers urging clients to falsify claims on their application forms about income so that they could secure a mortgage. Citizens Advice believe that the rising number of people with mortgage arrears has been a result of such behaviour. There are also an increasing number of court actions and repossessions against beleaguered homeowners. Although the attempts to help people become homeowners by mortgage brokers is acknowledged, Citizens Advice warns that such efforts can only work if the issues raised are effectively dealt with.

Citizens Advice was approached by over 57,000 people in the last 12 months, which was an increase of 11% on the previous year. The sub-prime market was found to be responsible for a higher than usual number of repossessions compared with the overall number, at times accounting for around ten times the number of court actions for repossessions than the general market. In a trend that refuses to be reversed, foreclosure figures are heading towards those seen in the property market crash of the 1990s.

David Harker, Citizens Advice Chief Executive, said: "The cavalier behaviour of some brokers and sub-prime lenders is seriously undermining home ownership and hitting the most vulnerable borrowers hardest. Our research suggests that many aspiring home owners have been mis-sold unsuitable and costly home 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 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."

Perhaps not surprisingly the Council of Mortgage Lenders did not agree with the findings of the report, saying it was too simplistic to criticise the mortgage industry in this way. Lenders, it said, provide more support to people in arrears than it was being given credit for.

CML director general Michael Coogan commented: "Citizens Advice has taken a sensationalist tone in this report, which risks throwing the baby out with the bathwater. In fact, sub-prime mortgages give people a way to rehabilitate their finances and are important in a financially inclusive mortgage market. This is a pity, as we agree with many of the underlying policy recommendations, particularly about the need for government to improve the woefully inadequate public safety net for home-owners who fall into difficulties.

"It is vital to recognise that the overwhelming majority of mortgage borrowers are meeting their payments in full and on time. 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."

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An author on a variety of property related subjects, which include mortgage rate reviews and detailed analysis of the role mortgage brokers provide in the current climate.