Increase in sub-prime mortgages

Independent market analyst Datamonitor today stated that sub-prime mortgages will grow faster than mainstream mortgages.

It believes that increasing numbers of people will have poor credit histories in future, thus fuelling sub-prime lending.

Datamonitor also estimate that by 2011, the sub prime mortgage market will be worth £31.5bn, a big rise from its market worth of £24.6bn in 2006.

Datamonitor say that growth in the sub-prime market will double that of the mainstream market in the next four years; it will still only make up less than 10% of the whole mortgage market by 2011.
Currently, sub prime mortgages account for 5-6% of all new home loans and are worth about £16bn a year. There are approximately 160 sub-prime deals available and 80% are sold by mortgage brokers.
However, added growth in sub-prime lending could mean trouble for the UK housing market and the economy.

Sub-prime mortgages are sold to people with poor credit histories who have a greater chance of defaulting. This, in turn, could cause financial difficulties for lenders, which is what is currently happening at present in the US. There, problems in the sub-prime lending market have led to a slowdown in the whole housing market.

"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," said Maya Imberg, financial services analyst at Datamonitor.