Sub-prime mortgages are set for strong growth in the UK over the next four years, according to market analyst Datamonitor.
Datamonitor predicts that the market for this type of mortgage will be worth £31.5bn by 2011, compared to £24.6bn in 2006.
Sub-prime mortgages are those sold to homebuyers with patchy credit histories, and who represent a greater risk to lenders. Increasing numbers of people have had debt problems, and this has fuelled the sub-prime market.
The analyst group has predicted that growth in the number of sub-prime mortgages would almost double that of standard mortgages over the next four years, though it will still account for just 10% of the mortgage market by 2011.
The sub-prime market is expected to grow at 4.7% per year up to 2011, whereas the mainstream mortgage market is predicted to grow by 2.6%, reaching £395.1bn in four years time.
Because sub-prime borrowers are more likely to default on their mortgage payments, lenders are exposed to greater risk on this type of home loan.
In the US, the housing market has slowed down as a result of the high number of defaults on sub-prime loans, and UK sub-prime lenders have been warned about the risks.
According to Maya Imberg of Datamonitor:
“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.”
The Financial Services Authority (FSA) recently reviewed the UK sub-prime market and found that some lenders are offering mortgages to people who should not be given them.
This raises the prospect of more problems with debt and repossession, as people desperate to get into the housing market take out mortgages that they are unable to afford.
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