London :  UK mortgage lenders are offering loans to "almost prime" and "complex prime" borrowers with "minor historic credit issues" who may have experienced financial "blips". They don't use the word subprime.

Three years after defaults on US subprime mortgages sparked the worst financial crisis in almost 80 years, General Electric Company's GE Money unit and Investec Plc's Kensington division are once again lending to British customers rejected by mainstream banks. This time, they say they're offering less money to clients with better credit histories.

"‘Subprime' sends messages out that people are lending money to individuals who can't repay it," said Gerry Bell, marketing director for GE Money's UK mortgage unit. "Our customers have clear track records" though some may have had "minor credit blips", he said. Now loans are less risky, he said. "It's very different from where we were in 2007."

Mortgage lending fell 60 per cent to £143.5 billion (Dh755 billion) last year from 2007, the height of the British property boom. Overseas-based lenders such as Morgan Stanley and Lehman Brothers Holdings Incorporated closed units or halted lending for borrowers with checkered credit histories. Now, Britain's market is recovering, with home loans increasing by 45 per cent in March from a year earlier, the Council of Mortgage Lenders said on May 17.

"There's a genuine market for people that are not particularly bad risks," said Ray Boulger, an adviser at mortgage broker John Charcol Limited. "The lack of supply means there is a market for sub-prime lending at higher rates."

Credit issues

At its peak in 2006, the UK sub-prime market accounted for £24.7 billion of loans, about 7.1 per cent of total gross lending, according to research by Datamonitor. Sub-prime loans now probably make up less than 4 per cent of the UK mortgage market, according to Christophe de Noaillat, an analyst at Moody's Investors Service in London.

That's seen as an opportunity by some. Aldermore Bank, owned by Morgan Stanley and leveraged buyout firm AnaCap Financial Partners LLP, plans to introduce residential mortgage products for clients with "minor historic credit issues" this quarter, according to the company's website.

"If the income can be proven or verified by an accountant, that's fine with us," the company said on its website. The lender doesn't accept customers with mortgage arrears within the past 12 months or court orders to repay debts, so-called county court judgments, in the last three years.

Aldermore will finance lending entirely through money it secures from customer deposits, rather than through securitising the loans, and will only lend to "credit-worthy borrowers," said spokesman Josh Cooper. He rejected the term "sub-prime".

"There are thousands of credit-worthy borrowers who are struggling to get mortgages who shouldn't be," Cooper said. Morgan Stanley's London-based spokesman Hugh Fraser said the bank's 40 per cent investment in Aldermore was made using client money from its fund of funds business and that the bank isn't directly re-entering the sub-prime market.

Subprime

Subprime has a long way to go to get to its 2006 level, when securitisations, a process where loans were parcelled up into bonds and sold to investors, helped fuel a borrowing boom.

Since January 2009, no new non-prime, or so-called non-conforming retail mortgage-backed securities, have been sold, Moody's Investors Service said.

That compares with 127 such offerings between 2001 and 2008.

Late payments for non-conforming mortgages declined to an average of 19 per cent in February from a peak of 21 per cent in June last year, Moody's said.