Sub-prime mortgages are set to grow faster than mainstream mortgages, independent market analyst Datamonitor has said.
Sub Prime mortgages help people with poor credit histories buy property
The group said that by 2011, the marketplace would reach £31.5bn, compared with £24.6bn in 2006.
Sub-prime mortgages are those sold to people with poor credit histories and thus a greater chance of defaulting.
Datamonitor said increasing numbers of people would have poor credit histories in future, fuelling sub-prime lending.
Overall, the group predicted that growth in the sub-prime market would be nearly double that in mainstream mortgages over the next four years.
However, the sub-prime market will still account for less than 10% of the total mortgage market by 2011.
Further growth in sub-prime lending may have dangers for the housing market and the wider UK economy.
Sub-prime borrowers are more likely to default on their loans. This, in turn, could cause financial difficulties for lenders.
That is exactly what is happening at present in the US, where problems in the sub-prime lending market have led to a slowdown in the wider housing market.
Datamonitor said UK sub-prime lenders should learn lessons from the US and be careful with their lending policy.
Account for 5-6% of all new home loans
Worth about £16bn a year
Approximately 160 sub-prime deals available
80% sold by mortgage brokers
Source: Council of Mortgage Lenders
"UK sub-prime lenders should take the US sub-prime mortgage crisis as a warning and ensure they are not over-exposing themselves to highly risky loans," said Maya Imberg, financial services analyst at Datamonitor.
Last week, the Financial Services Authority (FSA), the industry regulator, released its review of the UK sub-prime market.
It said some mortgage lenders and brokers offered loans to people who should not be given them.
The FSA found examples of people being offered mortgage deals they might not be able to afford.
The regulator said it was very concerned about its findings and would take action against five mortgage brokers.