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US lenders go bust in sub-prime downturn

Experts downplay risks to UK adverse lenders and cite differing market conditions.

Three US sub-prime lenders have stopped lending amid a market downturn across the Atlantic but experts insist that the problems are unlikely to spread to the UK.

Alliance & Leicester head of intermediary mortgages Mehrdad Yousefi says US sub-prime borrowers have higher unsecured debt problems so the two markets cannot be compared in this instance.

John Charcol senior technical director Ray Boulger thinks that rises in US interest rates are to blame.

Mortgage Lenders Network USA, based in Connecticut, stopped funding new loans through its intermediary channel last week while California-based Ownit filed for bankruptcy in December and Sebring Capital Partners of Texas closed in the same month.

US mortgage chiefs put their problems down to rising arrears and the poor performance of loan securities.

The UK adverse sector has been subject to worries over its future after the Council of Mortgage Lenders questioned in November whether the market could survive a recession.

International rating agency Fitch Ratings warned in December that rising repossessions will hit mortgage-backed securities from sub-prime firms following a year of profit warnings and lenders being forced to dip into their reserves to shore up their finances following losses.

Yousefi says: “What is happening in the US will not necessarily affect the UK as it is a different market. US consumers have a greater thirst for credit cards than in the UK and US borrowers with sub-prime loans have more debt than in the UK.”

Boulger says: “The biggest problem in the US is interest rates which have been rising further than in the UK. But it would be wrong to dismiss it as having no impact in the UK as many UK sub-prime lenders are owned or funded by US firms.”

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