He says lenders are restricted in the amounts they have available to lend and risk aversion to borrowers with problematic credit histories is such that any sub-prime products would be priced so highly they would not be affordable for borrowers.
Speaking to Mortgage Introducer last week he acknowledged the past importance of the sub-prime sector and its potential role in rehabilitating consumers who are struggling financially.
But he said he did not believe the FSA would support this type of high risk lending.
He told Mortgage Introducer: “Historically we were one of the first supporters of Kensington coming in to that end of the market because we saw the need for people to be rehabilitated. The key thing is do sub-prime lenders rehabilitate?
“Where they do, they’re clearly reaching their objectives, where they don’t, have they fallen into the trap of debt consolidation and the customer carries on borrowing on their credit card? It doesn’t achieve for the customer the outcome the FSA will want.
“Sub-prime which persists in putting off the evil day of paying bills is something the regulator won’t put up with."
Back on their feet
Coogan says he realsies a large number of people do have ad hoc problems and that they should be able to get back on their feet.
But he added: "The problem in an environment where there isn’t any funding is that they won’t get back on their feet by borrowing until they’ve rehabilitated their finances, which means a series of clear records in terms of credit card repayments or other types of debt before the mortgage.”
Coogan says the situation currently means lenders aren’t lending to all the first-time buyers who want a mortgage, which consequently means lenders do not want to go down the risk curve by lending to sub-prime customers.
He said: “Even if they did, the price of that risk might deter an intermediary from recommending that product.
“In the original days of sub-prime the product prices were much higher than prime, reflecting the risk.
"But what happened in the last period before the credit crunch, was sub-prime products being priced almost at the same price as prime. And that mistake will not be repeated because people have got the memory of the mistake and the impact.
Five years time
“It’s not a positive picture for sub-prime coming back in the near future, or the next five years.
"If it comes back it will be in a very small scale, closely regulated way and if it is properly priced for risk, and bear in mind mortgage pricing is not going to get cheaper, the price itself may just be too high for customers to bear.”
Many brokers report seeing borrowers with credit problems in their past, but consensus suggests the products available to deal with these customers are few and far between.
Lender Aldermore recently launched a range of products dubbed “complex prime” aimed at borrowers with marginally impaired credit, but criteria is still relatively restrictive.
Coogan added: “The simple answer is to keep your nose clean and go back to the lender when you can afford it and when you can get a good prime rate.”
