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Kensington's sub prime loans are credit crunch's latest victim

23 November 2007
Kensington, the first British lender to offer sub prime mortgages, has withdrawn its range of bad credit loans, effective from close of business today, amid a lack of appetite for portfolios of adverse debt because of the credit crisis in the US which is spreading globally.

Instead of providing mortgages to those with bad credit histories, for which it is well established, Kensington will concentrate its efforts on more low-risk products, re-pricing its range and removing other services such as self-certified buy-to-let mortgages, until conditions in the global capital markets have stabilised.

In September, Kensington's total mortgage assets were £6.5 billion, of which about 90 per cent is in sub prime loans. Cracks were appearing in September when the lender reduced the amount of the property price it would offer to 75 per cent "in direct response to the lack of investor appetite".

"Tough times call for tough decisions", Alison Hutchinson, Chief Executive of Kensington, said, and the measures lenders are taking to protect themselves as much as possible from the credit crisis fallout is reflective of the current credit conditions and the toll they are taking on mortgage providers, especially those which specialise in the sub prime market.

Ms Hutchinson continued: "Demand from investors for adverse credit or high LTV portfolios shows no sign of returning in the next few months, so we have taken the decision to put our Adverse range on ice and revamp our Prime range until the investor market returns".

Experts do not expect conditions to improve in the near future, and some are questioning what chance other lenders have in the realm of sub prime loans if specialists like Kensington, who pioneered the market in the UK, are cutting their losses and battening down the hatches until the storm blows itself out.

There is great fear of the number of repossessions rising considerably, damaging confidence in the sub prime market and raising questions about how the UK would cope with a sub prime mortgage crisis akin to that which the US is currently experiencing. Furthermore, it is feared that a home-grown crisis would exceed American proportions because UK house prices have far surpassed a comparable boom in the US which is now in reverse and will contribute to what Gerard Baker of The Times deems "the inevitable collapse of the American economy."

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