Lender offers cash deal on repayments

Edeus, a specialist mortgage lender that stopped writing new business three months ago, is offering cash incentives to existing customers for repaying their loans early.

The group, which provided subprime, buy-to-let and self-certification mortgages, is willing to cut up to 8 per cent off borrowers' outstanding mortgage debt and waive any early repayment charges if they redeem the loan in full by the end of September.

The incentive has initially been made available to 400 borrowers but may be broadened if the trial is successful. So far 20 per cent of customers have accepted the offer.

Edeus was forced to halt new lending earlier this year as the cost of obtaining funds rose sharply. The group is moving into new areas, such as helping other lenders assess credit risk and servicing other loan books.

"We need to utilise our capital as effectively as possible to fund our new business ventures," said Alan Cleary, managing director. "Presently, it's proving challenging to do that through traditional channels such as whole loan trading and the securitisation markets."

In the past Edeus had sold on the loans it provided to borrowers in the secondary markets. But Mr Cleary said secondary buyers were now only willing to purchase at significant discounts.

He said borrowers would be given the chance to reduce their mortgage by an average of 5 per cent, with some offered a 1 per cent incentive and others as much as 8 per cent.

The reductions should help existing borrowers with high loan-to-values switch to a new mortgage deal. Customers who have loan-to-values of 90 per cent or more may otherwise have been unable to find a new mortgage deal as many lenders have tightened criteria.

Edeus said its existing loan book was expensive to maintain as the cost of obtaining short-term funds had increased so much. The group said the threat of increasing defaults on its loans, particularly when borrowers came to the end of their short-term deal, was also a factor.

source : http://www.ft.com/