The news is full of stories about the "sub prime" market in the USA. This situation is creating difficulties for banks in the UK, the biggest so far being the apparent near-collapse of Northern Rock, whose share price fell to around a tenth of the level at the start of the year.
But what does sub prime mean? And do you come into that category? David Titmuss of The Mortgage Lender says, "18 months ago, perhaps only 15% of mortgage applicants were classified as sub prime - but we estimate that around 40% of all applicants today can be classified as sub or near prime."
Sub prime is one of many names, most of them euphemisms, for a mortgage or loan where the borrower is unable to obtain a mortgage from a conventional lender, because of a poor credit history, hard-to-document income or assets. Other names include "adverse" (with degrees such as "light adverse" and "heavy adverse"), "non-conforming", "near prime" (one of the more favourable degrees of sub prime) and "second chance" lending.
It most usually refers to someone with a poor credit record. The person may have been bankrupt, have County Court Judgments against them or need a loan to consolidate debts that they have difficulty managing.
Is your credit record correct? Find out with CreditExpert from Experian.
In the UK people usually just guess what sort of loan they will be offered after filling in a form detailing their income, credit history and if they have CCJs or have been refused credit elsewhere. In comparison, people in the USA usually know if they come into the sub prime category: US law requires that they receive their credit reports at least every 12 months. They are as acquainted with their credit status as with the contents of their bank account.
