UK sub-prime mortgages are set to grow faster than mainstream mortgages, a new report has warned.

According to independent market analyst Datamonitor, the sub-prime mortgage market expanded by 28 per cent in 2006 to reach a whopping £24.6bn.

And looking ahead, the firm expects the market for sub-prime mortgages to surge at a yearly average rate of 4.7 per cent to hit £31.5bn by 2011.

Over the same period, the mainstream mortgage market will grow at a yearly rate of 2.6 per cent to reach £395.1bn.

Sub-prime lenders offer loans to people with a poor credit history. Sub-prime borrowers are much more susceptible to interest rate rises and the slowing of house price appreciation.

"High levels of consumer debt coupled with a more difficult economic environment will drive the sub-prime mortgage market forward over the next five years," Datamonitor said in their report.

Datamonitor said increasing numbers of borrowers unable to cope with debts would fuel sub-prime lending.

"High consumer debt levels have become of increasing concern in recent years and are the subject of regular media attention," the report said.

"Healthily growing economy, low interest rates, low unemployment and a rampant housing market have led consumers to be more than willing to borrow and spend.

"However, more consumers are unable to cope with meeting their financial commitments.

"High levels of consumer debt coupled with a more difficult economic environment will drive the sub-prime mortgage market forward over the next five years.

"With more defaulting or meeting payments late, more consumers will fall into the sub-prime population."

Concerns about the sub-prime crisis in the US have severely damaged global stock markets in recent weeks.

"Despite the argument that they have sophisticated underwriting models in place, 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 and author of the report.