Some of the smaller sub-prime lenders could soon follow Victoria Mortgages into administration in the wake of the credit crisis, according to Ray Boulger, senior technical manager at John Charcol.
However, Boulger says lenders with large parent companies are less likely to be affected and may even emerge from the crisis in a stronger position.
Administrators entered Victoria Mortgages on Monday after the firm failed to secure funding for a new range of sub-prime mortgage products.
In an exclusive interview with IFAonline, Boulger points out several other sub-prime lenders could suffer the same fate as the market begins to correct itself.
Asked if more mortgage lenders could go into administration in the near future, Boulger says: “There is a very serious danger of that happening.
"A lot of lenders have set up over the past few years with very similar business models to Victoria Mortgages.”
According to Boulger, sub-prime lenders who are reliant on securitisation to fund their products might find it difficult to secure further funding in the current market, effectively putting them out of business.
However, lenders which do not rely on securitisation, such as those lending off a parent company’s balance sheet, could see some good opportunities in the long term.
“The big lenders are funded by retail savings business and while they might have some worries in the current market climate, they could end up in a strong position in the long term by using this opportunity to increase their customer base and market share,"Boulger says.
In the US, several high profile lenders have already ceased trading as a result of the credit crunch, but market commentators say the UK sub-prime market is not as large or risky as in the US and it is unlikely a major UK lender will go into administration.
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