Bob Sturges, director of communications at Money Partners, said: “The current turmoil affecting money markets and stock exchanges worldwide shows no sign of abating. The root cause is, of course, the US sub-prime market. The reasons for its problems are by now well understood, as are the arguments that insist its UK counterpart is fundamentally sounder. But that hasn't stopped it being impacted.
“In the past couple of weeks we have seen several specialist lenders withdraw or re-price their product ranges. This was predictable given the rapid decline of confidence in the credit markets and in any activity perceived as higher-risk. Sub-prime, or heavy-adverse, lending has been the first to suffer. But it's unlikely to end there, and we can expect similar challenges for other niche sectors, such as self-certification and, possibly, buy-to-let.
“All this has led to a slowdown in investment activity - in securitisations, for instance - and a squeeze on funding lines. The net result will be higher prices for borrowers and a tightening of lending criteria. Sub-prime consumers in particular are going to find their borrowing choices curtailed as certain product lines are withdrawn altogether. Some lenders will also be forced to look very closely at the long-term viability of their business models.
“The challenge is to weather the early part of the storm by ensuring product offerings and processes match market realities. Non-mainstream borrowers, who have enjoyed highly favourable choice and terms for years, will have to adapt. As will intermediaries, many of whom have an important stake in the long-term success of specialist lending. If current conditions persist, consolidation among firms is inevitable. But as history shows, major shifts in free-market operating conditions also open up fresh opportunities.
“But we're not quite at that point yet, and it is to be hoped that the market settles back to a position of calmer reflection on the inherent, long-term strengths of the UK mortgage sector.”
