Sub-prime borrowers facing 'massive' hike in payments

Sub-prime mortgage borrowers are facing large increases in their monthly mortgage payments if they cannot secure a new deal, according to Moneyfacts.co.uk.

The number of mortgages available for sub-prime homeowners has plummeted by 85% over the past year, it says, prompting fears many may risk financial hardship or even repossession.

Moneyfacts.co.uk’s latest analysis of the sub-prime market reveals the number of lenders operating in the sector has fallen by almost two thirds, from 36 in July 2007 to just 13 today. The total number of sub-prime mortgage products has fallen from 8,148 to 1,252 during the same period.

The reduction in product choice reflects a changed attitude to risk among UK lenders following the credit crunch in the late summer of 2007.

“Last year the market for sub-prime was so competitive that some rates being offered were only fractionally higher than standard residential rates,” says Darren Cook, mortgage expert at Moneyfacts.co.uk.

“Now, as lenders continue to factor in margins for higher risk, sub-prime customers are paying the price with rates up to 2.75% higher than the same time last year.”

Sub-prime customers that cannot secure a prime deal will almost certainly face much higher interest rates than before, but some may be unable to secure a new deal at all, and be forced onto their lender's standard variable rate.

“With this rate currently standing at 9.43% this could prove costly,” explains Cook.

“Borrowers could be facing up to a £360 hike in their monthly repayments, which could be a step too far for the majority. As a result we are likely to see more people facing the prospect of repossession as more and more deals come to an end in the near future.”

The Council of Mortgage Lenders has already predicted that repossessions will rise by as much as 50% this year, and believes sub-prime borrowers will be the main victims of the crunch.

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