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Sub Prime Mortgages Tossed

Kensington Mortgages is just one of the mortgage companies to recently withdraw the adverse mortgages from their loan menu. The lender has experienced several set backs in the year due to the US sub prime crisis, and they wish to counteract the effects by taking the sub prime mortgages off the market. One of the reasons for this is the low levels of interest from investors for adverse mortgages. They will hold the sub prime loans off the market until the housing crunch has ended and the market improves.

It is a tough decision for Kensington Mortgages as there are still several million people who need the sub prime loans. However the demand from investors for adverse mortgages and high loan-to-value loans has decreased and does not seem to be returning. Kensington believes that once the mortgage market increases they can again have sub prime loans, until that time they are going to re- work their prime mortgages in the hopes that investors will return.

Kensington Mortgages has funded their lending through the borrowing of funds from Capital Markets. This means that until the markets increase they are unable to borrow for sub prime loans. They also fear that the US crisis will affect the UK mortgage market by having a high number of repossessions. This has also decreased the demand for the sub prime loans from investors.

This decision will affect 90 percent of the company’s assets. ₤6.5 billion of assets deal in sub prime and near prime loans. Stopping the increase of this amount will affect the current mortgages that are out there at the moment. It will also affect the borrowers. They will not be able to get the loans they need, and thus they will look elsewhere. Many of the sub prime companies are refusing to have sub prime loans that the moment, so the borrower may not be able to purchase new property, which affects the building as well as the current value of homes on the market.

Kensington will stop the high loan to value buy to let mortgages as well as the self certification loans. The buy- to- let mortgages help real estate investors gain property to rent to those who don’t buy homes. This means that the real estate market is also going to suffer from the decrease in loans. Those who are self employed are also going to find it difficult to purchase new property as they are also near sub prime loans. These mortgages have also been cut to 90 percent on prime mortgage products, 85 percent on buy-to-let, and 80 percent on self certification products. The interest rates of the new mortgages have been increased, which will also affect the current borrowers.

Many individuals believe that the credit crunch will ease in the next year, but until that is actually happening mortgage lenders such as Kensington will continue to hold off on the sub prime loans. The criteria will tighten for those that they do allow, thus affecting the borrowers further

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