Homefunding chief executive Tony Ward claims that the demand for sub-prime mortgages is likely to rise in the next 12 months despite several lenders predicting a huge drop in business next year.
He points out supply will fall, with fewer lenders writing business in the sub-prime market, which will leave more business for those still in the market.
Ward says: “There are going to be a lot of sub-prime customers coming off fixed rates in the next 12 months. I think there will be a great demand for sub-prime, we just have a lack of supply.
“The biggest problem the market faces is the fact that it has not seen a securitisation issuance since the credit crunch started so it is hard for lenders to know how to price their risk.”
Ward also believes that some lenders are watching carefully with a view to entering the market.
He says: “This is a good time to enter the sub-prime market. We have never really got into the sub-prime market but it is something which we are actively watching and keen on.”
Alexander Hall chief operating officer Andy Pratt says: “I think the demand for sub-prime mortgages is going to go up. There is nothing in the market that says it is going to disappear.”
Pratt believes that when the market does come back, there will be better product innovation rather than going back to offering high loan to value ratios.
He points out that lenders such as Abbey, HBOS and Cheltenham & Gloucester which do underwrite sub-prime deals but do it on a prime deal basis could take a bigger proportion of the market by dipping further into the near-prime market.