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So long to UK sub-prime

The UK non-conforming mortgage market – colloquially known as sub-prime – was the only fully fledged non-prime mortgage market in Europe. It was one of the first sectors to suffer contagion from the US sub-prime crisis. Indeed, spreads on non-conforming RMBS began to widen in March 2007 – well before the generally acknowledged beginning of the credit crisis in August of that year. What has now become of that market? Can it ever be revived?

The short answer is that much of the UK sub-prime market has either stopped lending or simply disappeared. Deutsche Bank’s DB Mortgages operation was one of the first to cease lending to new sub-prime customers, in August 2007. Investec-owned Kensington Mortgages followed suit in November 2007. Paragon, a leading buy-to-let lender – a market that partly overlaps with non-conforming lending – ceased lending to new customers in February. In mid-September, it rejected a £373 million ($687.7 million) takeover proposal from a private equity group and abandoned talks with other potential bidders.

London Scottish Bank stopped writing new second-charge mortgage lending in January and first-charge lending in June. It is – rather appropriately – now principally focused on debt collection. Morgan Stanley pulled the plug on its Advantage Home Loans operation in February this year and Bear Stearns-owned Rooftop Mortgages ceased operating in April after its owner was taken over by JPMorgan. Merrill Lynch-owned Mortgages PLC was shuttered in April, as was Skipton Building Society-owned Amber. Merrill’s other sub-prime lender Wave, ceased lending the following month.

A late entrant to the sub-prime world, Alliance & Leicester, is now owned by Santander and no longer operates in the market.

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