Niche lenders get survival warning

Lenders that focus solely on the specialist mortgage market are at risk of marginalisation and will struggle to survive, GMAC-RFC has warned.

Speaking at the Council of Mortgage Lenders funding summit this month, Stephen Knight, executive chairman of GMAC-RFC, told delegates that investment banks lending in the UK market must address the entire mortgage spectrum if they are to succeed.

His comments came during a debate at the second annual event over whether the next logical lending step for investment banks is to go into prime lending.

Toni Moss, partner at EuroCatalyst, says despite slim margins in prime lending, investment banks are well placed to overcome this and be profitable because of their economies of scale and cost efficiencies.

She adds: “Lenders have to have lots of volume to be profitable because of slim prime margins but we’ve seen them going into prime lending in other countries so why not in the UK?”

But Greg Kohansky, director of Fitch Ratings, argues that investment banks are more likely to move into other parts of Europe before they look to prime lending in the UK.

Knight says: “It can be done. Lenders can’t get traction by only being in the specialist sector. Mainstream lenders are pushing into the specialist sector and sub-prime lenders that ignore prime lending are exposed to marginalisation. Their survival is in question if they don’t address the entire lending spectrum.”