As specialist lenders begin offering products aimed at borrowers with an imperfect credit history, comparisons will inevitably be made with the market in the lead up to the subprime crisis.
The market may have adopted a new image and lenders may have re-entered the sector tentatively, but what are the chances of another subprime crisis being triggered?
If there were another crisis, who would be most at risk, given the prevalence of gig workers now and those with low deposit amounts?
In the past
David Torpey, chief operating officer at Bluestone Mortgages, insists the market now is very different from the pre-crisis years which he attributes mainly to regulatory changes.
He suggests: “Lenders, investors and rating agencies have learnt from past mistakes, and it is important to remember that the 2007 global crisis was largely caused by lax lending criteria and checks in the US mortgage market, and a poorly regulated and capitalised banking market.
“While UK lending was far from perfect, the performance of UK mortgages was not the tipping point in the crisis.”
He reminds advisers that since the crisis, the capital ratios of the banks in Europe have increased on average from around 8 per cent to 14 per cent.
It is not just the lenders in the credit impaired market who are operating differently now.
The profiles of borrowers have changed in the past decade too.
As Jeremy Duncombe, currently director at Legal & General Mortgage Club, points out: “The changing nature of Britain’s workforce and wider societal shifts are making specialist lending an increasingly important part of the wider market and it’s important to distinguish the sector from the subprime market of the past, as well as clarify the types of borrowers it serves.”
He goes onto say: “In many cases, borrowers seeking the support of a specialist lender are credit-worthy, but have complex incomes that require a more tailored assessment than traditional credit-scoring allows.
“Some may draw their income from a salary and dividends, or might be a freelancer with a varying income month-to-month, while others might have experienced minor difficulties in the past as a result of a redundancy, divorce, bereavement or illness.”
He adds: “These individuals aren’t normally repeat offenders and often have a good payment history before and after their credit event.”
Lenders are getting better at recognising different needs outside of the traditional borrowing requirements, which means they are better able to tailor their products as a result.
Too young to fail?
There are no signs the UK is heading towards another subprime crisis, according to Ray Boulger, senior mortgage technical manager at John Charcol, who observes the post-2007 emerging subprime market is still “very young and small”.
He echoes Mr Torpey’s sentiments about increased regulation in the aftermath of the crisis.
