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‘High-risk lenders to lead sales in Europe’

The high-risk sector stands to benefit the most from cross-border lending in Europe, according to Mercer Oliver Wyman director Matthew Sebag Montefiore.

A report from Mercer – Risk Funding in European Res- idential Mortgages – suggests that more than 80 per cent of growth potential will be in higher-risk lending products as the prime market has essentially been “tapped out”.

But Sebag Montefiore arg-ues that it is more likely that smaller countries such as Lithuania and Ireland will benefit the most as bigger countries such as Spain, Great Britain and Germany are already competitive.

The paper, sponsored by the Mortgage Insurance Trade Association, which examines the potential of cross-border mortgages, reveals current untapped mortgage demand of more than 346.71bn in the European residential mortgage market. If cross-border mortgages become a reality, the potential increase in mortgage activity could amount to a rise in 15 per cent to Europe’s current level of home lending.

The growth opportunities come as a result of a changing Europe – rising house prices, declining saving rates, increasing numbers of single-family households and immigrants wanting to buy homes as a means of wealth accumulation and social acceptance.

Highly rated international banks will benefit with their access to low-cost deposits.

Specialist providers also stand to make a success of Eur-opean cross-border mortgages, with their willingness to embrace unconventional distribution alternatives.

Risk-management specialists such as mortgage insurers will also benefit as they can help lenders target demand with additional product and service flexibility.

Sebag Montefiore says: “The benefits will be for sma-ller lenders who do not have the scale of competition among themselves.”

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