Lending institutions in the UK have been warned to be wary when lending to consumers with adverse credit history.
The finance industry’s watchdog is paying “special attention” to this particular part of the market, and has announced that arrears are running at almost 22 times that of the prime mortgage market. The sub prime market has come under fire recently, in wake of the financial difficulties experienced by our cousins across the pond, which are coping with one of the biggest financial catastrophes of recent times.
A senior member of the FSA has suggested there are obvious parallels between the UK and US although there are also some differences. Many consumers in the UK experiencing debt problems are securing loans against newfound equity in their home, generated as a result of rising house prices. The problems in the US have stemmed from similar trends, however even slight changes in the housing market can put many indebted consumers at risk, as demonstrated in the US.
Many lenders within the UK have or are moving into the sub-prime market, attracted predominately by higher margins. The financial watchdog suggests that such moves could be very risky.
Bad credit home loans are becoming common, with almost 10% of the market formed from such products.
