The US Sneezed, The UK Mortgage Market Caught A Cold
Hot on the heels of the much publicised demise of US mortgage provider New Century Financial, which is rumoured to be about to default on millions of dollars of funding, it seems as though the UK market has caught a cold from the US sneeze!
While there has been speculation about the trading of so called “sub-prime†mortgage providers, i.e. those companies offering mortgages to people with bad credit ratings, the recent announcement by stock market listed Kensington Group was not well received. The company have stated that profits for the future will be lower than current market expectations, due to a mixture of competition for business and a rising defaulters list.
Kensington Group have also announced the departure of their chief executive John Maltby as the remaining directors instigate a full review of the company’s operations. The profits warning and confusion surrounding the company have resulted in the mortgage provider erecting its own “For Sale†sign - with a number of potential suitors looking for a bargain.
Now that Kensington Group have alerted the market to problems in the sector there will probably be a number of knock on events :-
· Other mortgage providers will need to review there profits forecasts for the current year and beyond, and alert the market of any possible concerns. As the troubles at Kensington Group are market related, there is every chance that competitors will be in the same situation.
· It is very rare for a company to alert the market to difficult trading, and then turn the company around in a short space of time. Negative publicity, consumer reaction and other factors will come into play and there is every chance of other warnings from Kensington Group in the short term.
While the signs are that the housing market in general is performing well, we may just be seeing the start of a slowdown and tail off in demand. As demand falls, the wafer thin margins which some mortgage providers have been dealing on will hit their overall profits, and cause further uncertainty in the market.
What further damage would another interest rate rise do now?
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