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Survival at stake for sub-prime lenders

Kensington Group chief executive John Maltby has questioned whether some sub-prime lenders can survive due to the “unsustainable” nature of products on offer.

The head of the UK’s first adverse lender had added his voice to the growing number concerned about the sector. It follows claims by lender Rooftop last week that too many lenders in the heavy-adverse sector were pricing at low levels that did not reflect the risk posed by some borrowers.

With the recent base rate rises, some commentators have questioned whether the sub-prime sector could be in trouble if increasing numbers of borrowers fall into arrears.

Rating agency Standard & Poor’s warned last year that more sub-prime lenders would see losses on their securitised books and have to draw on reserves to plug holes.

The CML announces new arrears and repossession figures next week. It indicated midway through last year that 2006 repossessions could leap by almost 50 per cent from the previous year to 15,000.

Maltby says: “I wonder about the merits of lenders and whether their expectations realistic. We see some very high loans to value at high income multiples. We are not sure that those products will be around in a year. At Kensington, we have seen interest rates and unemployment higher than today so have the ability and experience to test those things and we take a long-term view.”

Personal Touch director of mortgage distribution Dev Malle says: “If lenders are running loss-leading rates, then those products will not be around for ever but it is unlikely they would price to a level that would harm their business model.”

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