UK borrowers count cost of US crisis

The crisis in the US sub-prime mortgage market, which sent stock markets into turmoil last week, is also having its effect on prospective UK borrowers with poor credit histories.

Since the severity of the US crisis has become known, at least seven UK sub-prime lenders have raised their interest rates, or withdrawn their mortgage products.

Sub-prime specialist, Victoria Mortgages, withdrew its range of loans last week, whilst expressing the hope that things would return to normal by the end of August.

At the same time, Money Marketing magazine has reported that other lenders in the sub-prime sector have raised their borrowing rates, or have withdrawn their mortgage products in preparation for a new range.

GMAC-RFC, Unity Homeloans, Infinity Mortgages, Mortgages plc, Preferred, and DB Mortgages (a subsidiary of Deutsche bank) are all mentioned in this category.

Borrowers in the sub-prime market are typically people with a history of bad debt, or those with uncertain and variable incomes.

Sub-prime mortgage borrowers, who account for around 10% of UK mortgage lending, pay higher interest rates than those available on the High Street, and lenders who have announced increased rates over the last week are adding between 0.5% and 2.5%.

The Council of Mortgage Lenders has recently undertaken a review of this sector of the mortgage market and is confident that sub-prime lending in the UK had been far less risky than that in the US.

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