Few in the industry would argue that 2001 has been the most eventful year for the sub-prime market yet.
It all started with Platform being taken over by the Britannia Building Society back in February, followed by the acquisition of Future by Citigroup and i-group by GE Capital in the summer.
The market appeared to settle ‘ but the year looks set to go out with a bang with Mortgages plc parading itself before a series of blue-chip companies. Tongues have also been wagging on the future of Kensington, which speculators suggest may also be up for sale.
This all begs the question as to what will happen with SPML ‘ the last remaining independent sub-prime specialist?
Once the ‘black sheep’ of the mortgage market, with both lenders and brokers writing business tarnished with a bad reputation, the sub-prime market appears to be shaking off its rather negative image. This process can only be exacerbated as lenders thrive off the credibility of their new corporate parents.
As the acquisitions of i-group and Future have demonstrated, the sub-prime market has attracted the attention of some the worlds leading financial companies. But, equally notable is the entrance of Britannia ‘ the involvement of a building society, accountable to members rather than shareholders, clearly demonstrates the faith that other financial services providers now place in sub-prime lenders.
However, there is concern that as more mainstream players enter the market the fight for market share will intensify.
This is a threat that did not exist five years ago, and while new entrants may not be able to match the specialist’s expertise, they have strong distribution channels and a branding that carries weight with the consumer.
Increased competition is, in theory, good for the consumer, who benefits from a more diverse range of products and better rates. But on the flip side as competition increases, some lenders may relax their lending requirements encouraging borrows to take on dangerous levels of debts.
So, while the outlook may be rosy’ there are a number of challenges facing the sub- prime market as they enter this new phase.