Nice Loans.co.uk > News > Changes in Sub Prime Lending

Changes in Sub Prime Lending

Sub prime lending involves loans to people with a poor credit history, or who have no proof of income due to their employment status. It includes sub prime mortgages, as well as smaller cash loans, and has become increasingly popular in the UK and US.

In the UK major lenders have avoided sub prime lending in the past but recently some, including HSBC, RBS and the Alliance and Leicester, have decided to offer loans in this sector. It has been estimated that the sub prime mortgage market in the UK was worth £25-30bn in 2005. The Financial Services Authority started to look at this type of lending last year. It suggested that if the economy took a turn for the worse, then some investment banks could suffer as they help fund sub prime loans.

Worries have increased this year as a result of events in the US. A major US company is threatened with bankruptcy due to the increasing number of people who cannot keep up payments on sub prime loans. Other sub prime lenders are also in trouble following a slowdown in the US housing market and rising interest rates. The difficulties facing US companies, combined with higher interest rates in the UK and Europe, have raised further questions about the future of sub prime lending.