Abstract
Overview
Introduction
This report provides insight on bank attitudes to sub-prime lending in Europe, along with how these markets are changing and where the opportunities lie for lenders.
Scope
- Analyses factors that are inhibiting growth in some markets and studies some of the particularly attractive emerging sub-prime markets in detail
- Profiles some of the major specialists in Europe
- Uses Datamonitor' s European Branch Manager Survey 2006, consisting of 500 interviews with branch managers across Europe
- Measures mainstream banks' attitudes to sub-prime lending
Report Highlights
Following on from the launch of sub-prime lending in the US, the UK sub-prime mortgage market began to develop in the mid-1990s The UK sub-prime mortgage market has since expanded significantly, and now offers a wide variety of choices, including different repayment options, interest rates, and payment holidays.
Ireland is fast becoming a more competitive sub-prime lending market, with a number of lenders (and UK lenders) in the market, including CitiFinancial, HFC Bank, Start Mortgages, and GE Money. Moreover, investment banks are entering the market, as well as the announcements that some mainstream lenders will also become involved.
The development of sub-prime lending is linked to a competitive and often times a saturated mainstream lending market, yet there are a number of other factors that also have to be weighed into the equation. A country needs to have a large enough sub-prime population, the right regulatory climate, enough credit information available, among others.
Reasons to Purchase
- Plan your strategy knowing what other competitors are doing
- Understand the intricacies of each sub-prime lending market in Western Europe and the degree to which each can be tapped into
- Identify current best practice in the industry, and what other steps lenders are likely to take
Table of Contents
- CHAPTER 1 INTRODUCTION
- Scope of the report
- Definition of sub-prime individuals
- Who is the target reader?
- How to use this report
- Scope of the report
- CHAPTER 2 THE DEVELOPMENT OF SUB-PRIME LENDING INWESTERN EUROPE
- Introduction
- Sub-prime individuals are at the least worthy end of thecredit spectrum
- There are numerous degrees of sub-prime
- There are a number of drivers that affect the size ofthe sub-prime population
- Sub-prime individuals are at the least worthy end of thecredit spectrum
- Sub-prime lending began in the US during the early 1990s
- Sub-prime mortgages were the first product to becomeavailable
- The mid 1990s saw the inception of sub-prime creditcards
- Sub-prime lending then appeared in the UK
- Sub-prime lending made its way over to the UK during themid 1990s
- Sub-prime credit card lending is also present now
- Even sub-prime personal loans are available, though to asmall degree
- The UK is Europe' s most developed sub-prime lendingmarket
- Moreover, securitization is becoming ever more common
- Sub-prime lending made its way over to the UK during themid 1990s
- Sub-prime lending is now developing gradually in themajority of Western
European markets
- There are a number of factors that can hinder thedevelopment of this type of lending
- The majority of Western European retail banking marketsare seeing an expansion of sub-prime lending
- Introduction
- CHAPTER 3 THE STATE OF SUB-PRIME LENDING ACROSS WESTERNEUROPE
- Introduction
- Sub-prime lending in Western Europe still remains smallon the whole
- The majority of countries only have a few lenders andspecialists serving the market
- The degree of development differs across these markets
- Austria' s sub-prime lending market is highly undeveloped
- Belgium' s sub-prime lending market is slowly developing
- The development of sub-prime lending in Denmark isconstrained by bank and consumer attitudes
- Finland has a small, but reasonably well-known sub-primelending market
- Because of strict interest rate ceilings, there is asmall and restricted sub-prime market in France
- Germany' s sub-prime lending market has yet to fulfil itspotential
- Sub-prime lending is still very much at an emergingstage in Greece
- Ireland' s sub-prime market is developing quickly
- Sub-prime lending in Italy is particularly undeveloped
- The Netherlands has a number of active sub-primelenders, but the market is still small
- The sub-prime market in Norway is very limited
- Portugal' s sub-prime market has potential but remainssmall
- Spain' s sub-prime lending market has much potential forgrowth
- Sweden' s mainstream lenders tend to cater for thenear-prime, but the rest of sub-prime lending remains very small
- The UK has a significant sub-prime lending market
- Mainstream banks continue to maintain conservativeattitudes to lending
- Most mainstream banks have tightened their lendingcriteria in recent years
- The majority of mainstream banks remain somewhat riskaverse to individuals with a minor history of credit arrears
- Virtually all mainstream banks have problems acceptingindividuals with a major history of credit arrears
- Most mainstream banks do not tend to lend to those witha debt reconstruction on record
- Yet sub-prime lending markets are changing acrossWestern Europe
- Ireland is an example of a sub-prime lending market infast transition
- The Irish lending market has become more competitive
- The mortgage and consumer credit markets are booming
- Sub-prime lending is gaining momentum
- But there are some reputation and regulatory concernsover sub-prime lending
- GE Money is a leading player in the Irish sub-primemortgage market
- The Irish sub-prime market is likely to see significantgrowth given that the factors which could inhibit growth in this marketare limited
- Germany is an interesting sub-prime lending market toconsider for the
future
- Germany' s mortgage and consumer credit markets willimprove over the next five years
- Sub-prime lending remains very small up to now
- But the market holds considerable potential, and thereare a few lenders in the sub-prime business
- Spain and the Netherlands hold significant sub-primelending potential
- The Spanish sub-prime lending market is likely to growsignificantly in the future
- The Netherlands is also likely to be a growth market forsub-prime lending
- Portugal and Greece have potential for expansion, but anumber of
factors hold them back
- Portugal' s sub-prime market is still small but posesgood opportunities
- The Greek sub-prime sector remains an untappedopportunity, but development may be difficult
- Ireland is an example of a sub-prime lending market infast transition
- CHAPTER 4 CONCLUSIONS
- Sub-prime lending will become more common as time goeson
- Some countries will be more feasible for sub-primeexpansion than others
- Companies have a number of ways to become involved inthe market
- Lenders can enter the market themselves or set up aseparately branded subsidiary
- Non-lenders can also participate in this market
- Lenders should also be aware of the risks involved insub-prime lending
- In 2006 and early 2007 sub-prime mortgage firms in theUS began seeing
a large number of losses
- A significant number of sub-prime mortgage firms are nowin financial trouble
- Such a situation points to lenders who became tooaggressive
- The UK has also become a more uncertain market
- Sub-prime lenders in the UK need to ensure they do notmake the same mistakes as those in the US
- For lenders who view sub-prime lending as too risky,other segments should be investigated
- In 2006 and early 2007 sub-prime mortgage firms in theUS began seeing
a large number of losses
- European regulation could affect lenders in the future
- A review of the European Consumer Credit Directive isexpected in 2008
- But some are wary that it could affect the cost andavailability of sub-prime credit
- Possible European mortgage market integration is still anumber of
years away
- The European Commission has been pondering mortgagemarket integration for a number of years now
- Lenders are waiting for the White Paper in September2007
- A review of the European Consumer Credit Directive isexpected in 2008
- Sub-prime lending will become more common as time goeson
- CHAPTER 5 APPENDIX
- Supplementary data
- Supplementary data tables related to Chapter Three: TheState of Sub-prime Lending Across Western Europe
- Supplementary data tables related to Chapter Four:Conclusions
- Definitions
- Balances outstanding
- Gross advances
- Sub-prime
- Research methodology
- Relevant links
- Relevant readings
- Future Readings
- Datamonitor' s custom research capabilities
- Ask the analyst
- Supplementary data
- List of Tables
- Table 1: A sample of lenders likely to be offeringcredit to sub-prime individuals by country, April 2007
- Table 2: How has the proportion of customers thatapply to your bank and are declined changed in recent years?
- Table 3: Would you typically have problems lending tocustomers or reject customers outright who have a minor history ofcredit arrears?
- Table 4: Would you typically have problems lending tocustomers or reject customers outright who have a major history ofcredit arrears?
- Table 5: Would you typically have problems withlending to people with debt reconstructions on their record?
- Table 6: Mortgage and consumer credit gross advancesin Ireland, 2001-2005
- Table 7: Debt write-off by banks (individuals),December 2001-December 2006
- List of Figures
- Figure 1: A certain degree of subjectivity is neededin a definition of the sub-prime population because some lenders areinevitably willing to accept greater risk than others, 2007
- Figure 2: Drivers of the sub-prime population andconsequences, 2007
- Figure 3: The degree of development of sub-primelending differs greatly across Western European markets, 2007
- Figure 4: The majority of high street banks in WesternEurope have tightened their lending criteria in recent years, 2006
- Figure 5: The majority of banks in Western Europeremain somewhat credit averse, 2006
- Figure 6: Virtually all mainstream banks stay prettymuch clear of customers with a major history of credit arrears, 2006
- Figure 7: Banks in Western Europe almost always eitherreject or have some problems with lending to people with a debtreconstruction on their record, 2006
- Figure 8: Both Ireland' s mortgage and consumer creditmarkets have grown significantly in recent years, 2001-2005
- Figure 9: GE Money clearly targets the sub-primepopulation - among others - for its mortgages, February 2007
- Figure 10: Banco Primus targets sub-prime andmainstream customers for consolidation loans, February 2007
- Figure 11: In Datamonitor' s opinion, Germany, Ireland,Portugal and Spain are highly attractive sub-prime lending markets forthe future, 2007
- Figure 12: The number of debt-write offs by banks hascontinued to increase in the UK, December 2001-December 2006
- Figure 13: Datamonitor' s core consulting capabilities
