Halifax, the largest mortgage lender, plans to start lending to home buyers with bad credit histories for the first time later this year. Halifax, through its Birmingham Midshires subsidiary, hopes to lend £300m next year to "sub-prime" borrowers such as the self-employed and those with court judgments against them. It plans to undercut the handful of lenders, such as Kensington and igroup, that specialise in the sector.
Michael Bolton, head of lending at Midshires, said the bank wanted to be the largest lender for the sub-prime market. "There are excess profits being made here," he said. "I think we can take this market apart."
The move marks the return to respectability of the sub-prime sector, which had been shunned by high street lenders. But with repossessions near record lows and memories of the recession of the early 1990s fading, several of the specialist lenders have been sold and one, Kensington, floated.
This week igroup, the second largest in the sector, was sold to GE Capital for £200m, and in February Britannia Building Society paid £55m for Platform Home Loans, the third largest. Banks have also moved into sub-prime lending, partly to avoid fierce competition in the mainstream mortgage market. Halifax made Midshires, a former building society it bought in 1999, its specialist lending arm last year. It offers self-certification and buy-to-let loans and expects to sell close to £1.5bn of these and sub-prime mortgages next year.
Margins are high for lending to those who find it difficult to get credit, with interest rates of more than 10 per cent common - against closer to 6.5 per cent for mainstream home loans. Mr Bolton said Midshires would use its brand, and that of Halifax, to boost its attack on the less well-known specialist lenders, but would also operate on tighter margins. "We will aim to offer rates of say 2-2.5 points over base rate, and move customers on to around 1 point over base [or 6.25 per cent] after four years," he said. "Lenders like Kensington simply can't survive on that margin."
John Maltby, chief executive of Kensington, said the lender expected the market to grow rapidly and did not feel threatened by the high street banks.
Michael Bolton, head of lending at Midshires, said the bank wanted to be the largest lender for the sub-prime market. "There are excess profits being made here," he said. "I think we can take this market apart."
The move marks the return to respectability of the sub-prime sector, which had been shunned by high street lenders. But with repossessions near record lows and memories of the recession of the early 1990s fading, several of the specialist lenders have been sold and one, Kensington, floated.
This week igroup, the second largest in the sector, was sold to GE Capital for £200m, and in February Britannia Building Society paid £55m for Platform Home Loans, the third largest. Banks have also moved into sub-prime lending, partly to avoid fierce competition in the mainstream mortgage market. Halifax made Midshires, a former building society it bought in 1999, its specialist lending arm last year. It offers self-certification and buy-to-let loans and expects to sell close to £1.5bn of these and sub-prime mortgages next year.
Margins are high for lending to those who find it difficult to get credit, with interest rates of more than 10 per cent common - against closer to 6.5 per cent for mainstream home loans. Mr Bolton said Midshires would use its brand, and that of Halifax, to boost its attack on the less well-known specialist lenders, but would also operate on tighter margins. "We will aim to offer rates of say 2-2.5 points over base rate, and move customers on to around 1 point over base [or 6.25 per cent] after four years," he said. "Lenders like Kensington simply can't survive on that margin."
John Maltby, chief executive of Kensington, said the lender expected the market to grow rapidly and did not feel threatened by the high street banks.
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