FR: Tell us about why you decided to launch Magellan Homeloans and why you decided to launch now?
The credit crunch bought an abrupt end to any form of lending to borrowers with adverse credit records and, until fairly recently, anyone with anything other than a squeaky clean credit record has struggled to obtain mortgage finance. Over the past couple of years we’ve seen a number of lenders open-up their criteria to accommodate ‘near prime’ applications, but anyone with more than a minor credit blemish continues to be turned-away by mainstream lenders.
Our view is that its not right to disenfranchise many thousands of borrowers simply because they have experienced a one-off life event which has resulted in an adverse credit record. Our philosophy is that we understand people hit difficult patches which can lead to financial problems. What’s important to us is the applicant’s ability to explain their difficulties and demonstrate how they have been able to restore financial stability so they can now afford a mortgage.
In our opinion, a short-term financial wobble should not preclude borrowers from mortgage finance on a long-term basis and we felt the time was right to launch a lending proposition designed to help borrowers who deserve a second chance.
FR: There have been concerns raised about the type of lending you offer – do you feel these concerns are necessary, and how have you responded?
I guess it was inevitable that some pundits would say Magellan’s launch marked the start of a return to the sub-prime market of old, but nothing could be further from the truth.
In the pre-credit crunch market, specialist lenders were willing to lend to borrowers with any amount of outstanding adverse credit. Our proposition is very different. We’re targeting borrowers who have experienced one-off life events such as redundancy or illness which has resulted in an adverse credit record. Importantly, however, the applicant must be able to explain and document the reasons for their financial difficulties and demonstrate they have had a clean credit history for the last 12 months. If they can, Magellan Homeloans will consider their application.
Another important difference is that we’re pricing for risk, not pricing for market share. Again, some pundits were quick to point out how much more expensive our mortgages are than prime mortgages. Of course they are! However, we don’t lock borrowers in to our deals. We have no early redemption charges and borrowers are free to move to another lender at any time.
It needs to be remembered that we’re giving borrowers who have been locked-out of the mortgage market a second chance. For most, they will have few other options if they want to get back on the housing ladder. Our rates may be higher than prime rates but they are still in single figures and give borrowers an affordable route back into home-ownership.
FR: How can intermediaries access Magellan for their clients?
Our products are being marketed via a panel of mortgage networks which includes Sesame, Intrinsic, IN Partnership, Pink Home Loans, First Complete, Homeloan Partnership, Mortgage Advice Bureau and The Whitechurch Network.
We believe it’s important that borrowers have access to professional mortgage advice before taking out a loan, which is why we insist clients speak to a mortgage broker and why we don’t market our products direct to consumers.
FR: What are your plans for the next 12 –18 months?
To prove that our proposition is valid and that there is a role for a specialist lender such as Magellan Homeloans in today’s mortgage market.
FR: Do you think we will see more lenders returning to the adverse credit market?
Yes and more competition has to be welcomed, provided that new lenders take a responsible approach to what they’re doing and ensure their proposition is fully transparent, fair and in the best interests of consumers.
We spent a lot of time talking to the regulator to ensure they were happy with our approach and other lenders will need to do likewise.
The mortgage market needs greater competition and diversity. If you think back to the immediate post credit crunch era, the market was dominated by a small number of large lenders who would only consider squeaky clean prime deals. This effectively marginalised many thousands of borrowers which was not good for the market or the economy.
We hope that, in due course, people will recognise our proposition as a small but important step in the rehabilitation of the mortgage market.
Clive has a wealth of experience in the specialist UK mortgage industry. He was formerly the Sales and Marketing Director of Beacon Homeloans where he grew the company to become the 11th largest lender in the UK in 2010. Prior to this role, Clive was the Head of Sales at Future Mortgages.
