An Overview to Sub-prime Lending in Western Europe 2007

Content

• Chapter 1 Introduction
  • Scope of the report
  • Definition of sub-prime individuals
  • Who is the target reader?
  • How to use this report
• Chapter 2 The Development Of Sub-Prime Lending In Western Europe
  • Introduction
  • Sub-prime individuals are at the least worthy end of the credit spectrum
  • There are numerous degrees of sub-prime
  • There are a number of drivers that affect the size of the sub-prime population
  • Sub-prime lending began in the US during the early 1990s
  • Sub-prime mortgages were the first product to become available
  • The mid 1990s saw the inception of sub-prime credit cards
  • Sub-prime lending then appeared in the UK
  • Sub-prime lending made its way over to the UK during the mid 1990s
  • Sub-prime credit card lending is also present now
  • Even sub-prime personal loans are available, though to a small degree
  • The UK is Europe's most developed sub-prime lending market
  • Moreover, securitization is becoming ever more common
  • Sub-prime lending is now developing gradually in the majority of Western European markets
  • There are a number of factors that can hinder the development of this type of lending
  • The majority of Western European retail banking markets are seeing an expansion of sub-prime lending
• Chapter 3 The State Of Sub-Prime Lending Across Western Europe
  • Introduction
  • Sub-prime lending in Western Europe still remains small on the whole
  • The majority of countries only have a few lenders and specialists 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 is constrained by bank and consumer attitudes
  • Finland has a small, but reasonably well-known sub-prime lending market
  • Because of strict interest rate ceilings, there is a small and restricted sub-prime market in France
  • Germany's sub-prime lending market has yet to fulfil its potential
  • Sub-prime lending is still very much at an emerging stage 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-prime lenders, but the market is still small
  • The sub-prime market in Norway is very limited
  • Portugal's sub-prime market has potential but remains small
  • Spain's sub-prime lending market has much potential for growth
  • Sweden's mainstream lenders tend to cater for the near-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 conservative attitudes to lending
  • Most mainstream banks have tightened their lending criteria in recent years
  • The majority of mainstream banks remain somewhat risk averse to individuals with a minor history of credit arrears
  • Virtually all mainstream banks have problems accepting individuals with a major history of credit arrears
  • Most mainstream banks do not tend to lend to those with a debt reconstruction on record
  • Yet sub-prime lending markets are changing across Western Europe
  • Ireland is an example of a sub-prime lending market in fast 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 concerns over sub-prime lending
  • GE Money is a leading player in the Irish sub-prime mortgage market
  • The Irish sub-prime market is likely to see significant growth given that the factors which could inhibit growth in this market are limited
  • Germany is an interesting sub-prime lending market to consider for the future
  • Germany's mortgage and consumer credit markets will improve over the next five years
  • Sub-prime lending remains very small up to now
  • But the market holds considerable potential, and there are a few lenders in the sub-prime business
  • Spain and the Netherlands hold significant sub-prime lending potential
  • The Spanish sub-prime lending market is likely to grow significantly in the future
  • The Netherlands is also likely to be a growth market for sub-prime lending
  • Portugal and Greece have potential for expansion, but a number of factors hold them back
  • Portugal's sub-prime market is still small but poses good opportunities
  • The Greek sub-prime sector remains an untapped opportunity, but development may be difficult
• Chapter 4 Conclusions
  • Sub-prime lending will become more common as time goes on
  • Some countries will be more feasible for sub-prime expansion than others
  • Companies have a number of ways to become involved in the market
  • Lenders can enter the market themselves or set up a separately branded subsidiary
  • Non-lenders can also participate in this market
  • Lenders should also be aware of the risks involved in sub-prime lending
  • In 2006 and early 2007 sub-prime mortgage firms in the US began seeing a large number of losses
  • A significant number of sub-prime mortgage firms are now in financial trouble
  • Such a situation points to lenders who became too aggressive
  • The UK has also become a more uncertain market
  • Sub-prime lenders in the UK need to ensure they do not make the same mistakes as those in the US
  • For lenders who view sub-prime lending as too risky, other segments should be investigated
  • European regulation could affect lenders in the future
  • A review of the European Consumer Credit Directive is expected in 2008
  • But some are wary that it could affect the cost and availability of sub-prime credit
  • Possible European mortgage market integration is still a number of years away
  • The European Commission has been pondering mortgage market integration for a number of years now
  • Lenders are waiting for the White Paper in September 2007
• Chapter 5 Appendix
  • Supplementary data
  • Supplementary data tables related to Chapter Three: The State 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
• List Of Tables
  • Table 1: A sample of lenders likely to be offering credit to sub-prime individuals by country, April 2007
  • Table 2: How has the proportion of customers that apply to your bank and are declined changed in recent years?
  • Table 3: Would you typically have problems lending to customers or reject customers outright who have a minor history of credit arrears?
  • Table 4: Would you typically have problems lending to customers or reject customers outright who have a major history of credit arrears?
  • Table 5: Would you typically have problems with lending to people with debt reconstructions on their record?
  • Table 6: Mortgage and consumer credit gross advances in 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 needed in a definition of the sub-prime population because some lenders are inevitably willing to accept greater risk than others, 2007
  • Figure 2: Drivers of the sub-prime population and consequences, 2007
  • Figure 3: The degree of development of sub-prime lending differs greatly across Western European markets, 2007
  • Figure 4: The majority of high street banks in Western Europe have tightened their lending criteria in recent years, 2006
  • Figure 5: The majority of banks in Western Europe remain somewhat credit averse, 2006
  • Figure 6: Virtually all mainstream banks stay pretty much clear of customers with a major history of credit arrears, 2006
  • Figure 7: Banks in Western Europe almost always either reject or have some problems with lending to people with a debt reconstruction on their record, 2006
  • Figure 8: Both Ireland's mortgage and consumer credit markets have grown significantly in recent years, 2001-2005
  • Figure 9: GE Money clearly targets the sub-prime population - among others - for its mortgages, February 2007
  • Figure 10: Banco Primus targets sub-prime and mainstream customers for consolidation loans, February 2007
  • Figure 11: In Datamonitor's opinion, Germany, Ireland, Portugal and Spain are highly attractive sub-prime lending markets for the future, 2007
  • Figure 12: The number of debt-write offs by banks has continued to increase in the UK, December 2001-December 2006
  • Figure 13: Datamonitor's core consulting capabilities