Your MONEY: Brokers home in on the poor; FURY OVER MORTGAGE RIP-OFFS.
HARD-UP borrowers are being sold expensive mortgages they can't afford to repay, a damning report revealed yesterday.
The Financial Services Authority identified dodgy sales tactics in the pounds 30billion a year "sub-prime" mortgage market and five firms now face fines or a total trading ban.
Its report details reckless lending to vulnerable customers in a cut-throat business.
Sub-prime mortgages are offered to people with poor credit records. Past debts or missed bill payments mean they are seen as too risky for a conventional loan.
They are forced to pay 25-30 per cent higher interest in order to get a loan and often have to stump up hefty broker's fees on top.
Adam Sampson, chief executive of Shelter said: "For the poorest and most vulnerable in society, sub-prime lending can offer nothing more than a false promise of home ownership.
"Their practices often encourage families to overstretch themselves and live in constant fear of repossession and homelessness."
The FSA found almost a third of brokers failed to check if customers would be able to repay what they borrowed. Others sold customers "sub-prime" loans when they could have been eligible for a cheaper mainstream deals.
Some advised borrowers to re-mortgage, paying extra fees, without being able to prove this was a wise move.
The FSA also voiced concerns that half the loans were based only on borrowers's earning claims.
Ray Boulger, of mortgage advisers John Charcol, said the findings were of grave concern as the sub-prime mortgage market was likely to grow as more people struggled with debt problems.
"It was disappointing to note that over 50 per cent of loans were based on a self-certified income," he said. "Inflating income is a criminal offence and while there is no proof, one suspects that this may well have been the case in some, if not many instances."
Dave Hollingworth, of mortgage brokers L&C, welcomed the FSA's action.
"This should serve as a big warning shot across the industry," he said. "It shows the FSA has some teeth and is prepared to take action against firms who are not playing by the rules.
"It is good for reputable brokers like us and ultimately it should be good for customers."
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|Publication:||The Mirror (London, England)|
|Date:||Jul 5, 2007|
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