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Sub-prime movers

The sub-prime market is growing very comfortably into its newly accepted role in the mortgage industry – a specialist sector without which the credit-impaired borrower would not even be able to consider putting a roof over their head.

Coming of age signifies the closing of one door and the opening of a new one. But it has not been an easy journey for the sub-prime market and, although its situation is radically different from five years ago, it still has a long way to go.

Sub-prime lending has had to battle its way to maturity from a weak start over the past 10 years. Sub-prime lenders have become weary of justifying them,selves when they have proved time and time again that they offera respected service.

Now, at last, they are looking forward to how they can further develop their service and products and ably demonstrate that they fill a niche in the industry.

Each year, more than one million county court judgments are registered. Around 20,000 bankruptcy orders were issued last year and nearly 11 million mortgages were in arrears.

These alarming figures are created by situations that can happen to anyone at any time, such as divorce or long-term illness. So why should these people be denied the same opportunity and chances as prime borrowers? The fact is that they should not.

These statistics serve to prove why there is such a need for sub-prime lenders. They are generating billions of pounds worth of mortgage business each year – in fact, sub-prime has been the fastest growing sector of the mortgage market over the past two years.

Recent research by Datamonitor found one in five of the working population would have been rejected for a loan from high-street lenders if they had applied last year. Automated credit-scoring systems are increasingly ruling out borrowers from mainstream lending who previously would not have experienced any problems.

The new millennium sees sub-prime lenders on a level playing field with other lenders in terms of perception and reputation in the industry but that does not mean they should be content. Instead, they should strive to develop and mature as much as any other lender on the high street.

Despite the remarkable progress over recent years, it is still a fairly immature market and the future will present some big challenges. Business success will be determined by the sector&#39s ability to operate in an increasingly competitive environment. The last few years have allowed for a kind of settling-in period but the next few years promise increa-sed competition.

Product innovation is an essential part of survival. Sub-prime borrowers deserve and will increasingly want more choice and flexibility to move them more into line with mainstream borrowers.

To remain competitive, lenders will have to increase their range to appeal to the vast range of differing needs of the credit-impaired.

Realistically, there is no reason why the same options should not be available.

In conjunction with sub-prime lenders gaining a market foothold, some mainstream lenders have been showing an increasing interest in some aspects of the non-conforming sector and cherrypicking the areas they see as viable business opportunities.

While this move is a testament to the growing importance of the sub-prime indus-try, it is difficult to foresee the high-street lenders catering for the full range of demands due to the enormous shift in credit culture this will require.

It is likely, however, that we will see them acquiring and establishing special-purpose subsidiaries, such as Abbey National has done with HMC. This will undoubtedly increase competition in this market.

Among the mortgage-buying public, the concept of sub-prime, credit-impaired, non-conforming – call it what you want – is still low. This awareness must be raised to increase the size of the market and educate borrowers that there is a viable alternative to the high street.

Coming of age is an important threshold to cross but we should not view it as the end goal of sub-prime lenders. Future developments must be focused on meeting the demands of the customer.

The mainstream market constantly has to evolve to keep up with changing economic circumstances. Now the sub-prime sector must do the same.


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