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US sub-prime crisis hits UK shores

What a week it has been in the mortgage market. Money Marketing revealed that DB Mortgages has withdrawn its entire sub-prime mortgage range in what commentators believe could be the first major sign of a credit crunch in the UK market following the deepening US sub-prime crisis.

After a bit more digging, MM also revealed today that Investec-backed Infinity Mortgages has become the next lender to confirm it will be withdrawing its entire sub-prime mortgage range from the market on August 17.

A notice on its website says: “As a consequence of significant movements in the market it has become necessary to withdraw our current range from the market with immediate effect.”

The non-conforming lender says that all applications whether fully packaged or unpackaged will need to be received by Infinity by close of business August 17.

West Bromwich Building Society has also withdrawn its latest residential mortgage securitisation deal, citing difficult market conditions.

A West Bromwich BS spokesman says the firm will look at relaunching the postponed Hawthorn Finance Limited buy-to-let RMBS new issue when market conditions improve.

So it seems that the US sub-prime crisis is finally hitting UK shores. It will be interesting to see who will be the next lender to have to go down the route of withdrawing its products in the coming weeks.

Whilst DB Mortgages managing director Bill Dudgeon asserts that the withdrawal is only temporarily in order to re-price its product range, the lender has yet to give a precise date of when this re-launch will be. Dudgeon also denies that the decision to withdraw its sub-prime range is due to the worsening situation in the US.

Alliance of Mortgage Packagers and Distributors director of operations Eddie Smith believes that the US market is clearly having quite an effect for securitisation lenders.

“The problem these lenders will be having is that they now realise their portfolio’s will be very difficult to sell. A lot of lenders are telling us that they are finding the market extremely difficult and I think this will stretch on for the next 12 months.”

Smith adds that securitisation lenders will not be able to maintain a good price as well as paying distribution fees.

The turmoil of the US sub-prime market has been well documented by the media. More than half a dozen US mortgage lenders have filed for bankruptcy protection in the last few months with this week seeing American Home Mortgage – America’s 10 largest home-loan provider – become the latest victim. Deutsche Bank and JP Morgan have been named as the biggest creditors of AHM.

Last month saw two hedge funds run by Bear Stearns firms lose $1.5bn as a result of the problems in the US sub-prime market. There are also rumours that US bank Goldman Sachs has suffered losses in two of its hedge funds.

And just today there was news that the US sub-prime mortgage crisis has spread to Europe with France’s biggest bank BNP Paribas suspending three asset-backed securities funds.

With the money market in an absolute turmoil, it will certainly be a matter of watching this space in terms of the UK mortgage market.

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