UK sub-prime market set to grow

12.07.2007

The UK sub-prime mortgage market is set to grow by almost £7 billion over the next four years, according to new analysis.

A market study by Datamonitor reveals that the sub-prime market - lending to borrowers with a poor credit history - is to grow from last year's level of £24.6 billion to £31.5 billion in 2011.

Furthermore, the growth rate in the sub-prime market is expected to be double that of the prime market, although by 2011 the sector is predicted to account for ten per cent of the whole market.

In 2006, the sector grew by 28 per cent.

The growth in the market is expected to come in part from its greater acceptance and partly from the growing numbers of people now facing debt problems.

Datamonitor analyst Maya Imberg said: "More consumers are unable to cope with meeting their financial commitments.

"High levels of consumer debt coupled with more difficult economic conditions will drive the sub-prime mortgage market forward over the next five years. With more defaulting or meeting payments late, more consumers will fall into the sub-prime population."

In the US, the sub-prime market came into focus following high levels of defaulting on loans that occurred after the Federal Reserve increased rates for 17 consecutive months ending in August last year, which caught many borrowers out as repayments rose suddenly.

Ms Imberg said: "With the recent US sub-prime mortgage crisis, in which a significant number of borrowers have defaulted on their loans, the discussion has become a hot topic again.

"Despite the argument that they have sophisticated underwriting models in place, UK sub-prime lenders should take the US sub-prime mortgage crisis as a warning and ensure they are not over-exposing themselves to highly risky loans."

At a Dow Jones seminar in London this week, Bank of England monetary policy member Andrew Sentence explained that such sub-prime problems have not yet crossed the Atlantic.

He told Reuters: "It's probably best to wait and see how things unfold.

"I know [sub-prime risks] have emerged in the US. We are aware of that... It's yet to be a significant development in the UK."