The problem is one of supply, not demand

In my introductory article, I identified self-certification as one of the driving forces behind the spectacular growth of specialist lending in the UK.

From its genesis in the mid-1990s, lending to consumers with a sub-prime background has ballooned to account for as much as a quarter of the total mortgage market. But that was before the event we call the credit crunch struck.

Created by reckless lending practices in the US, the crunch has poisoned the international financial system and brought to a shuddering halt a decade of cheap and readily available credit. Denied access to funding at the level previously enjoyed, lenders have been forced to make hard decisions regarding to whom they are prepared to lend. Prime borrowers, understandably, remain their first choice. But with mortgage finance heavily rationed, the higher-risk sub-prime population has become all-but disenfranchised.

But let us be clear. The problem is one of supply, not demand. The socio-economic and demographic forces that fuelled the growth of specialist lending have not disappeared. If anything, they continue to gather strength as consumers pursue ever-more flexible lifestyles. Nowhere is this more evident than in the shift away from long-term, PAYE-based single-income occupations. Of course, this remains the norm for most working adults, but a sizeable minority may now be categorised as self-employed, contract-based or earning an income from multiple sources.

These are the consumers for whom self-certification was designed and for whom it works best. Next time, I propose to examine the size and scale of this population and its continuing influence on demand.