The non-standard market continued to decrease in size last year. But as we report on page 4, around 7.8 million adults or one in five of the population remain credit-impaired.
Drivers of the non-standard population in 2002 included interest rates and falling arrears and repossessions. Indeed, repossessions after the first six months of 2002 stood at 6,860 compared with 16,980 after the first six months of 1997. Social factors such as absence of a bank account, self-employment, receipt of income support, record of CCJs and bankruptcy were also driving factors.
But perhaps more interesting is that despite the growth of mortgage products aimed at the self-employed, self-employment itself remains a barrier hindering access to credit offered by mainstream providers.
As Michael Bolton, director of mortgages at BM Solutions, says: “The current rush of lenders in the last 12 months has been into the self-cert market. But there are certain elements in the lending industry that do not understand the market. Undoubtedly some of those lenders will get a bloody nose if they are not pricing for risk.”
Sub-prime lenders have long suffered from an image problem stemming in part from the troubles encountered by City Mortgage Company in the mid 1990s. But, as report author Alex Boorman points out, the industry is now working to improve its image. Large financial conglomerates such as Citigroup and GE Capital and mainstream financial institutions like Halifax have all entered the market. Why? In the mainstream market, competition and the subsequent difficulties in maintaining and growing market share have driven down margins. And although rates in the non-standard mortgage market are also falling, they remain higher than in the mainstream market reflecting the higher risk.
As a result of these new entries, products are more transparent than ever before. But perhaps more importantly, sub-prime has managed to develop an almost positive press coverage with new terminology that avoids the negativity associated with it in the past.
“The entry into the non-standard mortgage market of large financial conglomerates and mainstream financial institutions has been both a cause and a consequence of the newer image of the market,” says Boorman.