Kensington ditches sub-prime mortgages

Kensington Mortgages is to stop lending to sub-prime borrowers.

The lender is withdrawing from the sub-prime mortgage market due to low levels of interest from investors for adverse debt portfolios until the market improves.

"Tough times call for tough decisions," said Kensington chief executive Alison Hutchinson.

"Demand from investors for adverse credit or high loan-to-value 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."

Kensington funds its mortgage lending through borrowing funds from the capital markets.

However, following the US sub-prime crisis – where mortgage defaults by higher-risk borrowers increased – demand from investors for such loans has dwindled.

The decision is a major blow for sub-prime borrowers – who will find securing a mortgage more difficult - as Kensington is one of the largest lenders in the sector – with around 90 per cent of its £6.5 billion assets under management from sub-prime and near-prime loans.

Kensington is also stopping a number of its high loan-to-value (LTV) buy-to-let and self certification mortgages.

LTVs – the amount that can be borrowed against the value of a property – have also been cut to 90 per cent on prime mortgage products, 85 per cent on buy-to-let and 80 per cent on self-certification products.

Interest rates on a number of new mortgages have also been increased.

Sarah Robson, at the Council of Mortgage Lenders (CML), explained securing a sub-prime, or adverse credit, mortgage has become more difficult, but the situation should ease in the coming year.

"It will be more difficult for people to get adverse credit mortgages since lenders are tightening their criteria," she said.

"The general expectation at the moment is that there will be a reduction in interest rates next year. That will ease the pressure on some borrowers. It does give some borrowers hope."

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