UK Lender Puts Sub-Prime Range On Ice

by Stewart Douglas

Story link: UK Lender Puts Sub-Prime Range On Ice

 UK based mortgage lender Kensington Mortgages is ceasing to trade in the sub-prime mortgage business amidst the the credit crunch fallout that has rocked global capital markets over the course of the summer months. Sub-prime mortgages are offered to those with deficient credit history looking to climb the property ladder.

While the chances of borrowers not being able to meet payments is increased, higher interest rates were previously thought to sufficiently offset increased risk.

Kensington Mortgages was an early adopter in the sub-prime mortgage business. In July Investec, the South African investment bank, aquired Kensington as they faced troubles restructuring their loan books on the money markets. Investec paid £283m, in the wake of the credit crunch, at what then looked like a bargain.

Following the run on Nothern Rock, and the write-down of investment vehicles associated with sub-prime debt, the aquisition is starting to look far less appealing. Investors have lost their appetite for adverse debt portfolios. as they struggle to quantify their exposure. It is this apprehension thats caused Kensington Mortgages to re-evaluate their range of financial products.

According to Chief Executive, Alison Hutchinson: “Demand from investors for adverse credit or high loan-to-value portfolios shows no sign of returning in the next few months.” Kensington Mortgages plan to focus on their prime range for the time being.

They will also be removing other products such as self-certified buy-to-let mortgages from their offerings. The sub-prime pioneer will be withdrawing its “adverse range” as of Friday this week. Citing its growing adversity towards risk in light of the current market climate, the lender has suggested that the closure of its line may help benefit top level profitability and boost overall earnings.