The UK market for non-standard and sub-prime lending stands at 7.8 million adults, latest research from Datamonitor has revealed.
This is a decrease from 7.9 million at the end of 2001, continuing a longer term trend that has seen the UK non-standard population decrease from 8.2 million in 1998. Despite this, more than 21% of the adult population can be classified as non-standard.
In a new report, Datamonitor defines such individuals as those who are “systematically refused credit from mainstream lenders, whatever the size or nature of their application”. This includes sub-prime, non-status, non-conforming, and credit impaired customers.
It says the non-standard industry is improving its formerly negative image and has benefited from the market entry of mainstream financial institutions and increasing comparability between products offered by non-standard and mainstream lenders.
Alex Boorman, Datamonitor's financial services analyst, says: “Companies such as GE Capital, Lehman Brothers, Citigroup and Halifax would not have entered or acquired a presence in the non-standard market if they perceived that doing so would threaten their overall brand.
“At the same time the presence of these companies in the non-standard market gives it greater credibility and respectability.”
Datamonitor estimates that the non-standard mortgage market was worth more than £15 billion in 2002 up from £7.4 million in 1998. Boorman says: “The differential between margins in the mainstream and non-standard mortgage markets has been the major driving force behind the entry of mainstream lenders into the non-standard market. ”
However, penetration of mortgages within the non-standard population remains considerably lower than within the population as a whole. Datamonitor estimates that at the end of 2002 19.8% of non-standard households owned their property with a mortgage relative to 43.3% of the population as a whole.
Datamonitor attributes the decline in non-standard numbers to low unemployment and interest rates which have seen arrears and repossessions fall to 6,860 for the first six months of 2002, compared to 16,980 for the same period in 1997.
But the receipt of income support, CCJs and the lack of a bank account still drive the non-standard population.
Datamonitor estimates that around 6% of the adult population still do not have a bank account due to genuine exclusion or because they choose to opt-out.
Problems in confirming income status makes it hard for such individuals to access mainstream credit.
Boorman says: “Despite recent government efforts to target the unbanked population and to fight financial exclusion more generally such as Universal Banking Services, basic bank accounts, and the Savings Gateway, the unbanked population will remain an important component of the UK's socioeconomic landscape.”
Self-employment is another barrier to mainstream credit, despite the rise of mortgages designed specifically for this sector. The UK's self-employed population is currently 3.2 million.