Surge in bad debts takes toll on Kensington Group

Shares in the mortgage company Kensington Group, which specialises in lending to people with poor credit histories, plummeted almost 14 per cent yesterday, as it revealed a doubling of its bad debts, and warned of increasing competition in the specialist lending market. The warnings overshadowed news of a 24 per cent rise in first half pre-tax profits, as investors lost their nerve over future prospects for the company.

The chief executive, John Maltby, said: "The UK specialist mortgage market in 2006 has become very competitive, and the credit environment is more challenging than in recent years. We do not expect market conditions to get easier during the year. We are confident that our growth initiatives, our disciplined business approach and our focus on cost control positions us well to continue to grow profitably this year."

Although bad debts more than doubled in the first six months of the year, to £24.5m compared with £11.3m during the same period last year, the group said these numbers were in line with expectations, adding that there was evidence that bad debts were levelling off.

In terms of new business, the company grew faster than the market as a whole over the first half, increasing the amount it lent by 36 per cent to £1.7bn. Mr Maltby said that in spite of competitive pressures, the company had resisted increasing the maximum size of loans which it grants in relation to property value. Its average loan-to-value for the half was 75 per cent.

Kensington shares closed down 13.9 per cent at 885p, giving the company a market value of £466m. The stock was the biggest faller in the FTSE 350.