CHL believes that mortgage products which are sold with particularly deep discounts over the initial period may end up contributing to much greater payment shock for those borrowers when the special rate ends.
Due to the market situation that exists at present, namely tighter lending conditions, less lenders in the market accepting business, the decline in house prices and the inflationary pressures on the Bank of England, CHL is asking the mortgage industry to consider the continued use of heavy discounts.
With 1.4 million customers expected to come to the end of their special deals throughout 2008, CHL believes now is the time for lenders to put in place good policy with regard to the depth of the discount in order to maintain prudent risk management and ensure customers are treated fairly.
Jannie Vermeulen, head of credit risk at CHL Mortgages, commented: “The problem with discounted products, especially those that are deeply discounted, is the assumptions that come with them. These products are designed under the notion that customers can remortgage at the end of the discounted period when their property is worth more.
“The reasons behind these products are understandable – competition, sales targets, affordability and innovation. However, one must wonder if Treating Customers Fairly initiatives are being met if a borrower reaches the end of the discounted rate and experiences a 20-40% mortgage payment increase, at a time when they also have less chance of securing another mortgage.”
