"Sub-prime" borrowers are failing to shop around for a mortgage deal or properly assess loan terms and conditions, says a report from the Financial Services Authority (FSA).
An investigation by the City watchdog found that in the current financial climate – where lenders are increasingly reluctant to accept applications from people with poor credit histories or without a regular income – these borrowers are happy just to accept the first mortgage deal they are offered as long as it is affordable in the short term.
But in their eagerness, the FSA has warned, they are not double-checking loan terms and conditions to ensure that the mortgage is right for them. The FSA reports that the "overriding consideration" for sub-prime borrowers is to find the cheapest deal.
These customers are also going through brokers rather than approaching lenders direct, believing that this boosts their chances of being accepted.
Crucially, the FSA report was based on research carried out last autumn. Since then, lenders have been exiting the sub-prime market at breakneck speed as the credit crunch worsens. In fact, most mortgage brokers reckon that it is now very hard for a "high risk" borrower to get their hands on a mortgage at all.Reuse content