Subprime map of Britain adds to concerns
By Norma Cohen, Economics Correspondent Financial Times Published: April 18 2008 22:13 - Last updated: April 18 2008 22:54
Britain may be more at risk of a US-style housing slump than previously thought, according to the first detailed UK map that shows where subprime mortgage lending is concentrated.
Mortgages made to subprime borrowers home owners with a shaky credit history account for 10 to 11 per cent of all private homes in six UK towns, data from FitchRatings show.
The towns are: Newport, Wales; Cleveland, Teesside; Wolverhampton; Cardiff; Manchester; and Galashiels, Scotland.
The concentration of subprime loans in these towns is not nearly as high as it is in US cities such as Detroit, Michigan or Cleveland, Ohio. However, the evidence from the US suggests it could still be high enough to pull down values of nearby homes if defaults were to rise sharply, as repossessed homes are sold on at knock-down prices.
In the US, a ripple effect of falling house prices has prompted increasing numbers of owners to walk away from their mortgages, leading to yet lower housing values.
³While the UK housing market cycle looks to be at a different stage [from the US]...it would be foolish to conclude that house price adjustments as seen in the US could not be repeated in the UK,² Fitch said.Fitch believes subprime borrowers are 10 times more likely to default than the nation generally and at similar risk of being three months or more behind on mortgage payments.
Separately, economists at Citi on Friday forecast a 15 per cent fall in UK house prices by the end of 2009.