In a report which is fuelling fears that Britain could be headed for a home grown mortgage crisis reminiscent of that in the US, the Citizens Advice Bureau has spoken out against sub prime mortgage providers who have lured people hopeful of owning their own home into mortgages that they were never able to repay.
In a new report, Set up to fail
, the CAB reveals how irresponsible brokers have given dubious advice and encouragement to homebuyers, urging them to make bogus claims on their application forms, such as falsifying their income, in order to secure a mortgage. The CAB believes that such behaviour is resulting in high volumes of mortgage arrears, court actions and repossessions, and says that while encouraging people to become homeowners is admirable, it can only work affectively if these issues are dealt with.
More than 57,000 people approached the CAB with arrears problems last year, an 11 per cent increase on the previous year. The research found that the sub prime market is responsible for a disproportionate number of repossessions compared to the rest of the mortgage sector, sometimes accounting for ten times more court action regarding repossession then mainstream providers, and foreclosure figures are approaching those seen during the property market crash of the 1990s.
Citizens Advice Chief Executive David Harker 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."
However, the Council of Mortgage Lenders has disputed the report, saying that it is too "simplistic" in its criticism of the mortgage industry, and that lenders provide more support to those in arrears than the CAB is implying. Michael Coogan, CML director general 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."
The Conservative leader David Cameron has also spoken out in support of homeowners who could be facing up to £200 increases in their monthly mortgage repayments, and is urging providers to consider tapering the rise in payments and offering more support and advice to customers struggling to keep up with repayments.
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