Mortgages Uncovered

A mortgage lender is now offering a discount of 8% to homeowners who repay their mortgage earlier in a new sign of the turmoil that is gripping the mortgage market.

The sub-prime lender, Edeus is waiving all exit fees and early redemption charges for some borrowers who pay off their mortgage early on top of accepting between 92- 99% of the original loan as full payment.

So for example, borrowers offered the 8% discount would have to repay only £138K of a £150K loan.
The lender started piloting the scheme with 400 of their borrowers with buy to let loans or self-certified mortgages; it said that it would only extend the scheme to sub-prime borrowers if the pilot is a success.

Managing director of Edeus, Alan Cleary said that in the wake of the credit crunch lack of appetite amongst banks and indeed other investors for the mortgage-backed securities and whole loan books which the lender relies on has forced down the cost of such deals. He admits that the securitization market was dead and the bank were getting lower prices for loan books so they thought the best way to get money in was through the customer directly.

There are many sub-prime lenders who depend upon selling the mortgages they offer rather than retaining them on their own balance sheets and making money from interest payments.

No doubt that other lenders will be watching Edeus’s scheme closely. Another subprime lender, Kensington, said that it had no plans to follow suit though called it an “interesting development”.
Experts have pointed out that lack of funding in the mortgage market, especially for those with blemished credit records or with low equity in their homes may make it difficult for some borrowers to repay their loan and rival lenders may refuse to accept their custom.

Alan Cleary said the discounts they were offering were being calculated to help borrowers extend their equity, which may improve their chances of securing another deal.

This week Barclays also announced it was cutting mortgage rates by up to 0.35%, but only for borrowers with at least 40% or more equity in their homes.