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Home > Business/Finance > Financial Services > Lending
Sub-prime Lending: Entering the Mainstream
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| This report examines the current operating environment, the key players and the issues affecting the UK sub-prime lending market. Some commentators refer to it as the impaired credit or non-status credit market.
In recent years sub-prime lending has become an increasingly important business line for a growing number of new and existing financial services businesses in the UK, providing many new jobs in different regions of the country.
The growth of sub-prime lending in the UK has primarily been the result of the successful transfer of business models from the US. These models enable potential borrowers who do not pass the credit scoring threshold of mainstream lenders to be eligible for credit, albeit at higher rates and for lower amounts. Sub-prime lending is mostly applied to the mortgage market, but is also found in the car finance, personal loan and credit card markets.
Last year Mintel's Sub-Prime Lending report estimated the overall number of sub-prime consumers to be 3.2 million, rising to 3.65 million in 2005, depending on underlying economic and socio-demographic trends.
Sub-prime lenders have been greatly aided by being launched during a period when the UK economy has been particularly buoyant on the back of strong employment growth, rising incomes and low interest rates. With competition among lending institutions intense, and margins on mainstream consumer credit (mainly credit cards, personal loans and car finance plans) and mortgage lending being squeezed, much greater interest is now being shown in the sub-prime market as a target business area for acquiring higher margin lending business. High risk is not necessarily a bad risk.
For many years home credit companies in the UK have operated in the low- and moderate-income (LMI) segment, providing low value credit, collected door to door on a weekly basis by a team of agents. Many of these clients will be 'sub-prime' should they seek other credit facilities, although they have a very different business model to the new breed of US style sub-prime lenders.
Using a mixture of trade, desk and specially commissioned consumer research, this report updates Mintel's 2001 Sub-Prime Lending report against a backdrop of concerns over indebtedness, financial exclusion, economic uncertainties and increasing legislation.
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