After a number of years in decline, the non-standard population reached a turning point in 2006. Two new reports from independent market analyst Datamonitor reveal that households are having more difficulty coping with their financial commitments, and forecast that the number of people in the UK that are systematically denied credit by mainstream lenders will increase from 7.0m in 2006 to 8.6m by 2011. In 2006 saw an increase in the non-standard population for the first time in many years, as the financial difficulties UK consumers are experiencing are gradually feeding through.
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. Datamonitor has changed its non-standard population sizing methodology to exclude self-employed people with more than three years‚ proof of income, to better reflect changes within the lending industry. In 2006, Datamonitor estimates that 7m people of working age in the UK were systematically refused credit by mainstream lenders.
The year 2006 was a turning point as the non-standard population grew for the first time in many years, to 7m. In fact, the non-standard population had been declining for a number of years, due to a better economic climate and mainstream lenders relaxing their lending criteria. However, conditions have worsened since then and lenders have tightened their criteria. Indeed, 2006 saw the majority of bad debt indicators change direction.
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 totalled 17,000.
County Court Judgements (CCJs) rose for the second consecutive year since 1991. Figures from the Registry Trust show that there were 843,853 CCJs registered in 2006, an increase of 32.5% on the previous year‚s level.
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 a large number have seen their bad debts increase substantially over the last couple of years.
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 7m in 2006 to 8.6m 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.
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