Mortgages  

Why subprime has returned

This article is part of
Guide to the return of subprime

Why subprime has returned

The problems created by the subprime mortgage market in 2007 resulted in many lenders pulling out of the market altogether.

Homebuilding has still not returned to pre-crisis levels in the UK either, according to government data last year.

The data from the Department for Communities and Local Government revealed just 217,350 more homes were created in 2016, compared with 223,530 in 2007-2008.

In a press release last year, investment platform Homegrown pointed out: “It was a decade ago this year [2017] that the subprime crisis took hold, causing the rate at which the country added new homes to tumble by 18 per cent and 21 per cent in 2008-2009 and 2009-2010 respectively, falling as low as 124,720 in 2012-2013.”

The subprime market and other areas of the housing sector took a hit in the immediate aftermath of the crisis – one which the housebuilding market is still trying to recover from.

Signs of life

Yet there remains a need for products designed specifically for those with poor credit ratings who need a helping hand onto the property ladder.

There are signs of providers returning to the subprime market.

David Torpey, managing director of Bluestone Mortgages, insists there has always been demand for mortgage products that fall outside the credit appetite of high street banks.

“Yet the availability of suitable products largely disappeared from the market post-2007 due to reduced funding capacity from investment banks and unaffordable rates,” he recalls.

According to Moneyfacts.co.uk, there were 8,148 credit impaired products in July 2007. Today, there are just 713 products.

Charlotte Nelson, press officer at Moneyfacts, confirms: “There is a still a need for these types of deals and with this level of demand many providers have stepped into the void to offer [help to] these borrowers, who may have been overlooked by a mainstream provider.”

Many of the largest lenders are hesitant about stepping back into this area of the market, even though the term subprime has been dropped in favour of terms such as 'credit impaired' and 'specialist lending', which have fewer associations with the 2007 crisis.

The absence of high street lenders in the subprime space has left room for smaller specialist lenders, however.

Ray Boulger, senior mortgage technical manager at John Charcol, says: “The main reason for the return of subprime is the emergence of new lenders over the past few years [who were] prepared to target this market, as funds available for mortgage lending increased and some of these new lenders had to look for niches and parts of the market which were not well served.”

He notes: “Benign conditions, such as very low levels of mortgage delinquencies, exceptionally low interest rates and house prices stable or rising, also encourage lenders to move up the risk curve.”