Non-standard individuals are those who are systematically rejected from mainstream lenders. Lenders can reject non-standard individuals for a number of reasons, including county court judgments (CCJs), unemployment, a personal bankruptcy record or income support among others. Around seven million people of working age in the UK were systematically refused credit by mainstream lenders in 2006.
2006 marked a turning point as the non-standard population grew, for the first time in many years, to seven million. In fact, the non-standard population had been declining for a number of years, due to a strong economic climate and mainstream lenders relaxing their lending criteria. However, since then, conditions have worsened and lenders have tightened their criteria. Indeed, 2006 saw the majority of bad debt indicators change direction.
Lending criteria changes
Mortgage repossessions rose for the second time since the early 1990s. According to data from the Council of Mortgage Lenders (CML), at the end of 2006, repossessions totaled 17,000. CCJs also rose for the second consecutive year since 1991. Furthermore, according to official statistics from the Department of Trade and Industry, individual insolvencies in England and Wales increased by 33% in 2006 to 62,920.
While it is important to remain aware of the fact that bad debt indicators remain, for the time being, at low levels, they nevertheless point to consumers struggling in an economic climate that is now tougher than in previous years. Moreover, mainstream lenders are tightening their lending criteria as many have seen their bad debts increase substantially over the last couple of years.
More will be refused credit in the future
With interest rates going up, and high levels of consumer indebtedness here to stay, the non-standard population will rise over the next five years as an increasing number of individuals have difficulty coping with their financial commitments. Datamonitor forecasts the non-standard population to rise from seven million in 2006 to 8.6 million in 2011, driven by slightly higher unemployment, a rise in CCJs, arrears and repossessions, and self-employment.
While such a situation points to bigger opportunities for non-standard specialist lenders, such lenders must ensure they do not take on too much risk and lend responsibly. Despite the argument that they have sophisticated underwriting models in place, UK non-standard lenders should take the US sub-prime mortgage crisis as a lesson learned. 'End Intelliext
Sign up to our weekly newsletters for the latest industry news & comment.