The beginning of the end for sub-prime?

The last 12 months have seen the specialist lending sector go from strength to strength with record levels of business written and, presumably, record profits made. At the same time, product innovation has continued with correspondent lending, amongst others, firmly making its mark.

But what of the future of sub-prime lending? It seems that this once rapidly expanding market is slowly starting to fade away as lenders become increasingly flexible in their approach to clients with poor credit history. That&#39s not to say the market itself will disappear. Far from it. Lenders are widening their criteria to cash in on this lucrative niche. What was once sub-prime has evolved into light adverse and now nearly mainstream. Sub-prime lending is dead. Long live specialist lending.

A fair assumption? One chief executive thinks so.

As we explore in our cover feature starting on page 25, he&#39s adamant that the sub-prime industry as it is now will be dead in five years time. It&#39s an almost outrageous thought. But one that can be stacked up. He argues that balance sheet lenders of the likes of GMAC-RFC, GE Capital and Citi Corporation will be the only ones with enough financial muscle to survive in an increasingly competitive world, more so if ever the market degenerated into a price war. Of course, it&#39s not the only view.

Richard Hurst, communications manager at Future Mortgages, says exactly the opposite.

“It&#39s not necessarily about what you can sell, but what you can process,” he says. “The investment you would need in processing would have to be massive. Could these lenders price off a global balance sheet? Possibly, but how are you going to manage the flow? You might find some of the larger companies expanding on the customers that they want but I don&#39t think you will ever see them wanting to dominate.”

Meanwhile, Bob Sturges, communications manager at sub-prime lender igroup, says that the industry has become used to seeing evolution in the sub-prime market. After all, it&#39s gone from an unregulated single product market catering to adverse-credit customers to the increasingly sophisticated multi-niche product sector that is specialist lending.

Sturges says that tomorrow&#39s true specialist lenders will have to offer the full range of niche products demanded by today&#39s consumers – from buy-to-let to self-certification and credit repair.