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Sub-prime minister

Despite the move to sell directly to consumers with the recent purchase of The Mortgage Lender, sub-prime lender Kensington Mortgages is keen to emphasise its commitment to the intermediary market.

Kensington says it currently deals with about 100 mortgage packagers, which account for about 95 per cent of its lending but believes the acquisition of specialist lender TML for£15m in July will allow it to diversify its distribution.

Even with this diversification, it says around 75 per cent will still be done through intermediaries.

Kensington says it plans to keep its direct and intermediary arms separate and give Southampton-based TML the chance to expand its business with a fair degree of autonomy.

It says TML, which was a correspondent lending partner of rival GMAC-RFC until the acquisition, will be run as a separate entity from Kensington Mortgages, retain its existing management team and can continue to do business with other lenders.

It is confident that the investment in TML will help it boost its position in the sub-prime market that it has been part of since Kensington was set up in 1995. Kensington Mortgages general manager marketing and strategy Alastair Pate says: “Kensington will be the biggest sub-prime player with the acquisition of TML. We have always said that we wanted to grow and this opportunity came up to buy an existing introducer of mortgages.”

Kensington is confident it can reach the pinnacle of its sector by selling through the three distribution channels of intermediaries, mainly via packagers, partnerships with national chains such as Prudential Mortgage Services and direct to the public through TML.

The company says it would consider other acquisitions or moving into new product areas to increase its lending from the £670m last year.

Pate says: “The group would consider more acquisitions to reach its growth targets. It might not even be just in sub-prime that we expand. There are other specialist lending areas like buy to let or equity release we would look at.”

On buy to let, although unwilling to name names, Pate is critical of some new entrants to the market. He warns that some are offering high loans to value in a low interest rate environment without considering the consequences for borrowers if properties lie empty or if rates increase.

Kensington believes equity release offers excellent opportunities as few lenders have entered the market which analysts predict is set to boom as elderly people look for ways to raise income.

It is undeterred by the introduction of FSA mortgage regulation saying it is well placed for the new regime which is to be launched in 2004 because it has experienced in-house legal teams and has plans to strengthen its compliance function.

Pate says: “Kensington always called for full regulation of the industry and we did not think CP98 went far enough. We now hope the expansion of regulation will be good for consumers.”

But Kensington is critical of an FSA initiative for the format of the mortgage comparative tables which are set to be published next month.

Pate says: “If they add service to comparative tables that would be good rather than basing them around product and price. Comparative tables are not definitive, they are part of the decision-making process. Providing data to The Research Department for the tables is quite frankly a pain and we would like to get to a place where sourcing systems lift off a central database to ensure accuracy.”

Pate also plays down the mortgage code compliance board&#39s deadline of the end of the year for brokers to get the minimum required qualifications as a “red herring” as intermediaries have been given two years to train for the exams under supervision.

Turning to views on the housing market as a whole, Kensington takes a positive outlook, saying although it thinks there will be some natural slowdown of housing price growth, it does not predict a full-scale crash.

Pate says: “I am not forecasting a housing market crash, but we are forecasting a slower increase in property prices and some regional catch-up with the South east.”

But he concludes with a warning that some lenders are taking a short-sighted approach to the current market by stretching the affordability of some borrowers. He says: “There is a concern that lenders will get complacent and new entrants may charge higher income multiples.”

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