UK Sub-Prime Market Toughens On Credit Crunch Fears

By Stewart Douglas

The UK sub-prime lending market has become increasingly tight after the ongoing scandal in the equivalent US market, according to a recent survey.

The survey shows that lenders in the risky sub-prime sector in the UK, responsible for lending to those with poor credit histories, have learnt the lessons of the US situation, consequently tightening their lending policies.

Some lenders in the UK sub-prime market have even gone as far as to completely withdraw their range of loans within this market, with increasing risk of liquidity shortages making credit more scarce.

With the US economic crisis arising from the sub-prime sector still fresh, and the ongoing worldwide ramifications of lax lending in the market, UK lenders are being quick to exercise caution in what was once a significantly profitable lending market.

Almost across the board, the already inflated rates of interest attached to sub-prime loans have been increased by lenders to reflect the heightened risk of lending in a pre-credit crunch environment.

Despite measures across the US, Japan and the Eurozone to increase liquidity to banks, many lenders still feel with volatility on the markets and the slightest prospect of a credit crunch that sub-prime lending reflects an even greater risk than before.

The sub-prime market, accounting for roughly 10% of all UK mortgages, has traditionally loaned money to all but the very worst credit history individuals.

A report released recently by the Council of Mortgage Lenders reflected a much smaller risk to the UK mortgage market than across the pond, showing that the liquidity situation in the UK is more stable for the time being.

However, after tighter policies have been implemented across lending institutions, analysts have predicted that those with a poor credit history will find it increasingly difficult now to obtain a sub-prime mortgage.