Sub-prime crash coming, says IFA

Cartel Client Review in the press

The fast-growing sub-prime sector is heading for a crash, a leading IFA has warned.

 

Carl Wright, managing director of Manchester-based Cartel, has claimed half of all lending in the non-conforming sector is being mis-sold by intermediaries.

 

Mr Wright said brokers were knowingly putting clients on the wrong mortgage to secure higher procurement fees. He claimed lenders had been turning a blind eye to the practice in a bid to shore up business.

 

Mr Wright said: "I have been told by directors of sub-prime lenders that at least half of customers that have gone to mid-to-heavy adverse products could have been sold near prime or prime products. Any broker who places a client on sub-prime when they do not need to does it for one reason only – commission."

Fees for sub-prime products are generally larger for heavily adverse products. This, it is claimed, is fuelling bad practice by mortgage intermediaries. But IFAs are not solely culpable, according to Mr Wright.

He said: "The prime responsibility for mis-selling lies with the broker, but the ultimate responsibility is with the lender."

"They have abused the trust of consumers and caused untold damage to people paying interest rates that far outweigh the nature of their circumstances."

 

Richard Coulson, managing director of mortgage network Home of Choice, which has a sub-prime offering through Choice Home Loans, acknowledged that some mis-selling had taken place, but questioned the figures quoted. He said: "It does take place, but not 50 per cent – that is far too high."

"If there are brokers out there not using a sales process that will stand up and defend them in the future, they need to be looking at it now." Mr Wright claimed that the regulator will uncover a hornets’ nest. He said: "The FSA has got its headlights beaming all over sub primes. If a broker knowingly or wantonly mis-sells a client a mortgage, then the full weight of FSA attention should come down on them."

 

Mr Wright said scrutiny from the regulator, coupled with increased arrears and bad debt, could lead to a crisis in the sub-prime sector. He said: "There is a need for sub-primes, but they have to be designed and produced ethically and sold with sensitivity in a vulnerable part of the market."

 

Publication date: 27 October 2005

Publication name: Financial Adviser

 

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