View more on these topics

‘UK sub-prime not exposed to US stresses’

CML says market differences will buoy up UK lending

The Council of Mortgages Lenders insists the UK will not succumb to the sub-prime traumas experienced in the US.

The trade body is adamant that the two markets are different enough not to suffer similar stress. It says up to a quarter of US loans are subor near-prime compared with 5 to 6 per cent in the UK, as the US definition of sub-prime is wider.

Around 80 per cent of US sub-prime lending is on variable rates, which the CML says exposes borrowers to greater volatility. Other problems it highlights include the greater popularity in the US of discounted deals, that then create a big payment shock when they revert to the variable rate.

Between 2004-06, the US base rate increased by 4.25 percentage points to 5.25 per cent. The UK base rate has grown to to 5.25 per cent cent since August but has risen less sharply.

The CML’s comments come after the battered US sector suffered another setback after sub-prime giant New Century Mortgages filed for Chapter 11 protection this month.

Tremors have been felt in the UK as Kensington Mortgages has been forced to issue repeated profit warnings over the past few months. Some commentators, most notably rating agency Standard and Poor’s, have complained of stress in the market due to relaxed criteria.

The CML says: “We agree with what Bank of England governor Mervyn King told the Treasury select committee two weeks ago that UK lenders are not seeing the same default experience as their US counterparts.”

Hamptons Mortgages technical director Jonathan Cornell says: “Rumours of a UK demise are exaggerated. The two market are completely different.”

Analysis, p23, p25

Recommended

Dalton replicates UK fund

Dalton Strategic Partnership has launched the Melchior selected trust UK opportunities fund. This is a Luxemburg based Sicav which replicates the investment strategy of the onshore Melchior UK opportunities fund.

Correspondent’s Week

This week by ex-Daily Mail personal finance reporter James Coney, now deputy business editor at the Daily Mirror.

Ethical first from Seven

Seven Investment Management has introduced its first ethical fund in response to the growing demand for funds that do not compromise an investor’s principles.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com