Media
High-risk borrowers face 11% mortgage rates
8 April 2008
Up to three million mortgage-holders may be looking for a new deal in the coming year as their two and three year fixed rate deals come to an end. Anybody with outstanding credit problems (called ‘sub-prime’ in the words of the lenders) is going to find their options limited and expensive.
This could be a significant number of people, if one considers that unsecured borrowing on credit cards currently stands at some £1.3 trillion and one missed payment can see you labelled a credit risk.
‘All the traditional rules of lending have been ripped up,’ says Paul Reynolds, managing director of broker Moneyquest. ‘Rates in the sub-prime market are now running up to 10% and 11% and in many cases borrowers will be better off staying with their existing lender on the standard variable rate.’
His opinion is echoed by other brokers.
‘What is absolutely certain is that prices will rise and some borrowers coming off two-year deals will see standard variable rates of 7% to 9%,’ says Rob Clifford, chief executive of specialist broker Mortgage Force.
Clifford is also predicting that some lenders will charge penalty rates. ‘If you have become a non-conforming borrower there is a risk you will pay a rate even higher than the standard variable rate (SVR),’ he warns.
Richard Morea of broker London & Country agrees that those who fail to meet tightened credit-checking criteria will have limited options.
‘Missed mortgage payments are regarded as the worst misdemeanour and lenders will be looking at the homebuyer’s recent past – what has been happening over the past 12 months. If a borrower currently has arrears and is coming to the end of a mortgage deal they probably won’t be offered anything other than the standard variable rate by their existing lender – but that is likely to be better than an adverse credit deal.’
‘Abbey and Accord are still prepared to consider adverse credit cases and to a certain extent so is C&G. But anything over 85% loan-to-value with credit problems – forget it,’ says Morea.
Source: Citywire, April 2008
