Sub-prime lending set to grow

Market researchers at Datamonitor say the sub-prime market which facilitates mortgages for those people with poor credit histories  is set to grow at a quicker rate than the mainstream market.

The firm said that it expected the market would reach £31.5 billion by 2011, with an annual increase of five per cent.

This would represent a dramatic upturn from the £24.6 billion the sub-prime market was worth last year, which itself came after a period of sustained growth.

However, there were some words of caution from the researchers, who point to the problems experienced in the US market where bad credit mortgages have often proved a risky investment for lenders, with some ending in bankruptcy.

With the base rate rising up to 5.75 per cent in the last monetary policy commission (MPC) meeting individuals could find their debt management increasingly difficult and potentially default on the loan.

Maya Imberg, an analyst with the firm, commented: “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.”

Cumulative debt in the UK now stands at more than £1 trillion.