Mainstream mortgage lending rose by 4.5% last year while the sub-prime market saw growth of 9.1%, amounting to 41.2bn of lending, according to Datamonitor.Looking back to 15 years ago, sub-prime was a market that didn’t really exist – it was just the niche for borrowers with imperfect credit histories. It was not really until the 1990s that specialist lenders targeted the sub-prime sector. We owe the name as well as the idea of lending sub-prime to our American cousins, where lenders had been serving this highly profitable market for years. In this country the sub-prime sector is forecast to continue to grow and, while being highly competitive, offers excellent opportunities for traditional lenders that have done their research to identify and capitalise on gaps in the market. This is why The Derbyshire chose this year to launch its specialist lending brand, Salt, and expand further into these market areas. The Salt brand will be established by way of a controlled entry into the marketplace, with products distributed exclusively through a panel of packagers. A high proportion of business in the sub-prime market is packaged. It is an area of the market that brokers are not too familiar with, so assistance in placing non- mainstream deals and getting them ready for approval is a huge benefit to brokers. What’s more, the fact that a lot of the sub-prime lenders are centralised means they rely on distributors to get their products to market. The packaging sector has shown it is highly innovative. The process of satellite packaging has grown out of, among other things, the need for smaller packagers to maintain access to lenders. Far from being a dying breed, packagers are evolving and consolidating in order to work in a changing mortgage environmentBrokers now have a deeper understanding of sub-prime and lenders are increasingly using credit scoring to underwrite their sub-prime deals. At Salt, our broker research provided us with insight into what is important to intermediaries and their clients. This was undertaken to ensure our offer meets demand in the marketplace. We learned the crucial things are clear, quick decisions, sticking to those decisions, access to underwriters, competitive pricing and trust. Brokers clearly have to look for fresh income streams while ensuring they comply with regulation. This has further reinforced their value as the providers of mortgage advice and recommendations to consumers. They are also able to gain access to products from a broad range of lenders, putting them in a position to offer choice. One way a broker can boost their income is by looking at areas such as sub-prime, self-cert and buy-to-let, where commissions are generally higher than in prime. The market is vibrant, exciting and here to stay. It’s certainly the one to watch – compulsive sub-prime time viewing.
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