Victoria Mortgage becomes first UK failure

Victoria Mortgage Funding, a specialist sub-prime mortgage lender, has called in the administrators, becoming the first UK company to fail because of the global credit crisis.

KPMG took control of the group yesterday after it was unable to secure financing to continue operating.

Victoria operated by originating loans for risky borrowers, which it would then bundle and sell on to other investors.

That model has become virtually impossible amid the meltdown in global markets as institutions once eager to buy packages of loans have now turned their back on such securities.

America's largest lender, Countrywide, said last week that it would slash 12,000 jobs, the latest of several major US groups to be hit by the crisis. Yet Victoria is the first in the UK to run aground.

The London-based company has a book of more than 1,700 residential loans worth £300m.

It did not offer loans directly to customers, but rather though brokers and individual financial advisers. It has another 381 mortgages in process, which rival GMAC-RFC said that it will review over the next three days.

A KPMG spokesman said it was still too early to tell what the final outcome will be for Victoria.

"It is very early days yet. We have to get underneath the bonnet and find out what the situation really is," he said.

Earlier this year, Victoria sold a loan book made up of more than 3,500 mortgages worth £500m into the debt markets. That was before the global credit crunch took hold this summer.

Spurred by a spike in defaults in America on sub-prime loans that had been granted to borrowers and then been sliced and diced into bonds sold to hedge funds and institutions, the credit markets ground to a halt as the extent of non-payments grew.

Victoria was started two years ago with the backing of Venturion Capital, a New York venture capital group.