Sub-prime won’t return to pre-crunch levels

LEADING trade bodies have given the clearest sign yet that sub-prime lending will never return to the high levels seen before the credit crunch.

The comments followed a statement by Mervyn King, governor of the Bank of England, in which he claimed the heady days of “wild lending” will not return.

King made the statement as the BoE launched its £50bn Special Liquidity Scheme to swap mortgage-backed securities for government bonds last week. Sue Anderson, head of member and external relations at the Council of Mortgage Lenders, says: “There’s been a severe contraction in the range of products on offer. The market is resilient but we are never going to see a return to the spread of deals that were available before.”

Patrik Carlsson, director of the British Bankers’ Association, says that although the BoE’s bailout will hopefully deliver much-needed liquidity to the banking sector, the key factor is risk. He says: “It is important to make the differentiation between risk and liquidity.

“In today’s climate it is inappropriate to be involved in 100% LTV mortgages. Banks are now more conscious of the impact of new business on their books.”

He adds: “They are being encouraged by the government and the BoE to rebuild their capital positions, so it is unlikely they will want to extend high LTVs to borrowers who are more hungry for capital.”

The Building Societies Association agrees there may be a move away from sub-prime but warns against giving up on the sector completely.

Neil Johnson, PR and policy manager at the BSA, says: “Sub-prime has helped consumers who otherwise may not have been able to get back onto the property ladder.

“Lenders are increasingly looking at risk but they need to realise that just because consumers have had black marks on their credit records in the past, it does not mean they cannot afford to get back on the housing ladder now.”

Last week King said that the Special Liquidity Scheme was not meant to facilitate another boom in the mortgage market.