UK Sub-prime Malpractice Uncovered

By Stewart Douglas

A report by the BBC has uncovered widespread mal-practice in UK sub-prime mortgage lending, which it is predicted could lead to a mirror image problem of the US sub-prime lending crisis according to industry insiders and expert mortgage analysts.

The study into lending habits conducted through candid interviews with industry experts highlighted a popular trend towards encourage exaggeration on self-certification sub-prime loans, where lenders encouraged borrowers to artificially inflate their income figures in order to borrow more substantially, a practice which has the potential to increase mortgage defaults and tie up bank liquidity.

The situation resembles closely that of the now collapsed US sub-prime sector, which had swollen to bursting with banks quick to loan as much money as was requested to over-eager sub-prime lenders, many of whom were given similar instructions to inflate their self certification levels of income.

As interest rates rose at the Federal Reserve, so too did the repayment bills of those tied in to sub-prime agreements, which sent those already borrowing above their means straight into default.  As a direct consequence, bank liquidity became a premium as foreclosure sales and repossessions became much more frequent.

With the exception of Northern Rock, the UK mortgage market has until now remain relatively unscathed in direct terms from over exposure to sub-prime losses.  However if practices like those uncovered by the BBC report as a widespread as would appear, the UK economy could be facing a sub-prime crisis of its own as interest rates continue on the ascendancy in response to global economic pressures.

The Financial Services Authority, the body responsible for regulating financial services in the UK, has said in response to the findings that it will be launching its own investigations with a firm pledge to eradicate similar loose lending habits from the UK mortgage market.