Sub-prime lender offers 'golden goodbyes'

Sub-prime lender offers 'golden goodbyes'

In credit-crunched times, many banks and building societies are not exactly putting out the welcome mat for mortgage customers. But it would now appear that things have become so bad that one lender is offering its home-loan customers "golden goodbyes" worth thousands of pounds to encourage them to take their business elsewhere.

Edeus, a specialist mortgage lender, revealed yesterday that it was offering some of its customers an 8% discount on what they owed if they cashed in their mortgage early, because it wants to get the loans off its books. It is also waiving any penalties that lock borrowers into their deals, and the exit fee of about £150 they would usually have to pay to leave.

About 400 customers have been offered discounts of between 2% and 8% to test demand. But if the scheme proves popular, the firm says it will consider extending it to thousands of others.

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A discount of 8% would add up to a saving of £16,000 for someone with a £200,000 mortgage. Put another way, someone who owed Edeus £200,000 on their home loan would only have to pay back £184,000.

The company said the response from customers had been very good so far, with more than 20% already in the process of redeeming their mortgages. It added that the unusual move was cheaper than selling the loans any other way, due to the problems in the market as a result of the credit crunch.

"It's the lesser of two evils," said Alan Cleary, the company's managing director. He added that customers certainly did not seem to take offence at the suggestion that they were no longer wanted. "They don't care," he said, adding that their attitude was one of "show me the money".

In theory, the discounts could translate into cash windfalls for some borrowers. However, the tightening of the mortgage market during recent months means home loans are now more expensive and harder to get hold of. As a result, most of those who are able to remortgage will probably have to use the money to reduce what they owe, said Ray Boulger at the broker firm John Charcol. He suspected that many of those targeted by the offer would find it difficult to remortgage in the current climate. As to whether other lenders might follow Edeus's example, Boulger said: "I don't expect to see many, if any, lenders follow suit, but Edeus will have given some of them food for thought."

Edeus was set up in 2006 and specialised in selling sub-prime, buy-to-let, self-certification and mainstream mortgages through brokers. It is closed to new mortgage business, and has switched to offering home loan-related services to other lenders.

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