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Sub-prime is set for cash crunch

Mortgages plc is warning that the sub-prime market cannot sustain the present number of companies.

Head of marketing Julian Wells expects some lenders to fold or be taken over as the aggregate forecast lending figures from sub-prime firms add up to more than the total size of the market.

The Council of Mortgage Lenders last week estimated the sub-prime sector is only worth around £16bn to lenders, compared with previous estimates of £30bn.

Mortgages plc says the rhetoric from some adverse lenders is similar to that used by networks before M-Day when many claimed they would attract significantly more appointed representatives than they did, resulting in many networks either failing or being bought by rivals.

The number of sub-prime lenders has grown in recent months with the arrival of several lenders backed by big investment banks.

Wells says: “People are setting ambitious targets for lending and it seems there are too many lenders so it has to be a problem. If the CML’s figures represent the size of the market, then it is worrying as lenders are talking about doing £1bn worth of business here and £1.5bn there so it cannot all happen, yet some lenders are already doing a lot more business than that. Either the market grows or lenders will fail or consolidation will happen.”

CML director-general Michael Coogan says: “Will the industry be revolutionised by the competition for new lenders and is there enough of the cake to go round?”

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