In a somewhat timely manner the article in The Economist points to a recent sale of bonds secured upon a pool of mortgages issued by the Kensington Group (the British mortgage group specialising in lending to those individuals with impaired credit profiles). The article points to demand outstripping supply in the bond markets, the relatively low premium demanded by such investors whilst at the same time witnessing a very precarious situation in the US. A mere matter of hours after reading the article on Friday my attention was brought to the 23% fall in Kensington’s share price on the back of a profits warning and the resignation of its CEO John Maltby. The bonds have also suffered but as you’d imagine to a lesser degree than the equity.
Clearly we aren’t in any immediate danger of finding ourselves in a US type scenario. Structural differences between the two property markets mean that UK borrowers remain in a position to re-finance and avoid defaulting on their obligations – house prices in the UK continue to rise strongly, in contrast to the recent US experience. However, the article, along with press reports over the weekend of a 102 year old pensioner being granted a £200k (interest only) buy to let mortgage do highlight the need to keep a close eye on loose lending standards on this side of the Pond too.