The
sub-prime mortgage sector is the fastest growing sector in the industry, but a leading IFA warns that it is heading for a crash.
Carl Wright, managing director of Cartel based in Manchester claims that intermediaries are mis-selling over half of all mortgages. This meant that
brokers knowingly sold clients the wrong mortgage in order to obtain a higher fee.
This practice in turn was being ignored by
lenders who were happy to keep their businesses going.
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."
Sub prime products have larger fees than other products. Therefore bad practices are becoming commonplace by mortgage intermediaries because of the fees involved. However it is not just the intermediaries who are responsible.
Mr Wright 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 acknowledged mis-selling occurred but not at the high 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."
He went to say, "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."
Scrutiny by the FSA and a problem with arrears increasing along with
bad debt could all create a crisis situation 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."
