The impact of the liquidity crisis is still being felt hardest in the sub prime sector.
The sub prime and self cert sector in the UK accounts for around 9% of the mortgage market and this looks likely to shrink.
With competition in the sub prime mortgage industry now much less intense than it was 6 months ago, the lenders that are still in a position to lend have no need to compete on pricing and are able to concentrate on margin. Even now lending volumes are lower these lenders are able to restore their margins and therefore hit their forecasts.
Only yesterday there was another casualty of the crisis announced. Future Mortgages has decided to cease lending and close at the end of May.
Sub prime volumes are probably down around 30% – 40% and the heavy adverse and high loan to value (LTV) areas of the sub prime market are all but non existent.
Is this an end to the sub prime sector?
More borrowers than ever, who previously would have qualified as prime borrowers are unable to meet the tougher criteria and will need to look at sub prime lenders for mortgages. An example would be that 6 months ago lenders might have accepted 2 years clean credit history to qualify as prime, but now most would want at least 3 years.
Also with rising fuel bills, food costs and increasing council tax bills and all the other forms of taxation that the Government continually look to implement , UK borrowers are finding it more difficult to meet their payments. This again will force them down the sub prime route where looking to arrange finance.
The wholesale markets for mortgage backed securities will not be closed forever and the sub prime sector meets a real need in the market and therefore the cycle will turn again in its favour.