Aggressive lenders are preying on the poor, suggests Citizens Advice
Citizens Advice has accused UK sub-prime lenders of knowingly giving mortgages to many poor borrowers who cannot afford them.
It says the lenders are "aggressive" with such borrowers when they fall behind with their repayments.
However, the Council of Mortgage Lenders (CML) said the report was "skewed" and "disproportionate".
It said the charity's attack on the sub-prime mortgage industry was "simplistic" and "sensationalist".
"The vast majority of mortgage customers receive a high level of help and care from lenders of all kinds if they fall into difficulties, in accordance with the rules set out by the Financial Services Authority," said the CML.
"The allegation that they [lenders] default too quickly to court action is an assertion that is not borne out by the typical practices and processes of specialist lenders," it said.
The report from Citizens Advice, entitled Set Up To Fail, denounced the methods of sub-prime lenders.
"Dubious advice from brokers, irresponsible lending decisions and aggressive arrears management by sub-prime lenders are driving the current increase in mortgage arrears, court action and repossessions," it said.
The report looked at case studies from 1,200 people who had asked for advice at Citizens Advice bureaux in England, Wales and Northern Ireland, as well as surveying its clients who had arrears on their mortgages and other secured loans.
"Our research suggests that many aspiring home owners have been mis-sold unsuitable and costly home loans that are doomed to fail from the start," said Citizens Advice chief executive David Harker.
"Many sub-prime lenders are flouting the rules on responsible lending by granting loans when it's clear the borrower will not be able to afford to repay it from the very outset, then getting tough immediately things go wrong," he claimed.
The CML argued that people seeking help from Citizens Advice were likely to have the worst problems and therefore were not typical of sub-prime borrowers in general.
The lenders also said it was "no surprise" that such borrowers might have a higher default rate than mortgage borrowers generally.
However the IMLA, a trade body which represents the interests of lenders who market their products through mortgage brokers, welcomed some of the charity's proposals.
"We do agree with Citizens Advice that the different regulatory regimes for first and second charge loans (and indeed the current regulatory 'gap' for secured loans over £25,000) has created complications," said IMLA executive director Peter Williams.
"Similarly, while judges can and do take account of individual people's circumstances, there is evidence that borrowers are not always treated consistently by the courts, and we would favour further consideration being given to this point, he added.
The claims by Citizens Advice chime with other critical reports this year.
The Financial Services Authority (FSA) has increasingly been taking action against dishonest mortgage brokers who sell unsuitable loans.
In October, a BBC investigation, reported by the Panorama programme and Five Live Report, found that sub-prime mortgage lenders who gave loans to people with bad credit records accounted for more than 70% of repossession hearings.