Brexit jitters could lead to a resurgence for sub-prime mortgage markets

The recent vote to leave the European Union is expected to make the economic picture gloomier for Britain, dampening growth, increasing joblessness and making it harder to get a mainstream loan.

Britons already owe almost £1.5 trillion, according to data from The Money Charity, and the government’s paring back of social support mean many are forced to seek alternative sources of credit.

An analysis by price-comparison website Moneyfacts.co.uk for Reuters shows that the subprime lending industry in the UK is growing.

Its research shows the number of ‘adverse credit’ mortgage products or home loans to people with a patchy financial history, has more than doubled to 262 from 110 a year ago.

“There are around 12 million people that the mainstream banks and financial companies will not lend to,” said John van Kuffeler of Non-Standard Finance, who also spent 15 years at the helm of Bradford-based Provident Financial, the UK’s biggest doorstep lender.

Mr Kuffeler predicted that figure could rise to 15 million people if there was a deep recession. The subprime lending industry, covering small loans to mortgage lending, flourished in the run-up to the 2008 financial crisis.

After all but disappearing in the aftermath, the demand they left behind was met by so-called payday lenders like Wonga which drew heavy criticism for interest rates as high as nearly 6,000 percent on short-term loans.

Those lenders have in turn retreated after Britain’s financial watchdog put a cap on what borrowers have to pay back. Now new lenders that offer less exorbitant but still high rates are once more finding plentiful demand, as mainstream banks tighten their loan criteria.