Sub-prime Suspect

By Declan Lawn
BBC Panorama

Emmanuel Blango borrowed £500,000 on an income of £30,000

From the balcony of his apartment, Emmanuel Blango can look out across the Thames to the City of London.

It's a great view and a pleasant modern flat - but neither is worth the price Emmanuel paid.

He is the victim of a simple and audacious property fraud which works by selling overpriced apartments to unsuspecting buyers, many of whom get out sub-prime mortgages to cover the cost.

The seller takes the money and disappears.

Bad credit history

Emmanuel himself, who has a bad credit history, was surprised that he was given a sub-prime mortgage for £300,000 with the Alliance and Leicester. He only earns between £25,000 to £30,000.

In effect, the City has spent the last several years playing multi-billion pound game of pass the parcel Panorama's survey on repossessions

With a mortgage worth ten times his income he was even more surprised when his mortgage adviser then got him yet another mortgage for £200,000 from Platform, part of the Britannia Building Society, to buy a second flat in the block so he could enter the buy to let market.

Now, the second flat has been repossessed and he's struggling to keep up the repayments on the first.

STATEMENTS FROM LENDERS Home and County response [1.5MB] Most computers will open this document automatically, but you may need Adobe Reader Download the reader here Statement from Platform Statement from London Scottish Statement by Swift Advances Alliance and Leicester

Both mortgage companies have said they are now investigating the matter.

A decade ago Emmanuel would have found it difficult to get a mortgage.

Now, the easy availability of sub-prime credit means that he, and others like him, can get access to amounts of money that are many multiples of their incomes.

Trading debt

The reason we all need to be worried about bad sub-prime debt like Emmanuel's is that it can contaminate the rest of the economy.

That is because in the City of London, debt is traded just like any other commodity.

David and Maureen Bradbury were also sub-prime borrowers. Read their story

Mortgages are rolled up in vast packages of debt and sold on - so the lender you originally take your mortgage out with may no longer own the debt.

If debt is bought and sold at the right time, there are vast amounts of money to be made. The problem now is - just how many mortgages like Emmanuel's are rolled up amidst all of the other debt?

In effect, the City has spent the last several years playing multi-billion pound game of pass the parcel.

The snag is that in this game, you probably don't want to be holding the parcel when the music stops.

Light touch

In November of last year Southern Pacific Mortgages which is owned by Lehman Brothers investment bank was forced to buy back £13m of mortgages it had sold on after discovering they had all been sold fraudulently.

The FSA is also under fire with critics saying its "light touch" regulation of the mortgage selling companies was leading to increased fraud.

There's a lack of official statistics surrounding the reliability of sub-prime debt in the UK, although some city analysts are already sounding warning signals.

Our research is by no means the final word on the subject, but it does suggest a disturbingly high correlation between sub-prime mortgages and bad debt

Edward Register, senior director at Fitch Ratings, recently pointed out that the level of arrears in some UK debt portfolios is actually higher than in similar debt parcels in the US.

We've carried out our own research into the reliability of the British sub-prime mortgage market.

We looked at the details of more than 7000 repossession hearings in the UK over the last three months, and we identified which companies were involved in seeking those repossessions.

In 70% of cases the companies were either exclusively sub-prime lenders, or had sub-prime lending as a significant part of their business.

We then counted out which companies were involved with the most repossession hearings and divided that figure by the size of their loans outstanding to work out which companies were suffering from the highest number of repossessions in relation to their size.

Bad debt

Top of our list was Swift Advances which provides so called secondary charge loans, which are loans people take out in addition to their mortgages.

What is interesting about this figure is that repossessions due to secondary charge companies such as Swift Advances do not appear in the six monthly repossession statistics provided by the Council of Mortgage Lenders.

They only deal in first charge mortgages. Essentially these statistics are the great unknown in the housing market, although they are potentially driving down house prices.

Our research is by no means the final word on the subject, but it does suggest a disturbingly high correlation between sub-prime mortgages and bad debt.

What's clear is that one corner of an elaborate financial structure now rests on real people, many of whom are struggling to repay the money they have borrowed.

Emmanuel Blango has been staring across the Thames at the City skyline for two years; it's only now that the City is beginning to stare back.

Panorama: Sub-prime Suspect, BBC One Monday 8 October 2030.