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Fears over Mortgage Express margins

Difficult times could lie ahead for Bradford & Bingley&#39s specialist lender Mortgage Exp-ress as pressure builds on margins, says Merrill Lynch.

Analyst Christina Marzea says she is concerned with MX&#39s balance growth, saying that as the book matures, the higher redemption profile of this type of lending – buy to let, self-certification and equity release – will become evident, with negative implications for book growth and margins.

Marzea says MX redemptions in the first half of the year have “ticked up significantly” and asset duration continues to decline while pointing out that just to keep revenues flat, for every £1bn of traditional mortgages redeemed, B&B needs to do around £1.5bn of specialist lending through Mortgage Express.

Earlier this year, Durlacher analyst David Pannell warned of a buy-to-let bubble, saying the sector is more dangerous than its small share of the overall market would indicate.

Marzea says: “There are limits to how fast this book can continue to grow and it is as yet unclear to us that it can deliver improved returns. If anything, we see further margin pressures ahead, both on the funding side and on the lending side, where specialist lending redemptions remain a risk.”

But MX head of business development Tim Sturley says: “We widened our product margins in the first half of 2004 and the asset quality of our lending remains excellent. Balance growth has continued to be strong. Both our arrears levels and our redemption rates are performing better than the market as a whole and we see no reason for these trends to change.”

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