Sub-prime remortgagers face 26% increase in repayments

Standard & Poor’s (S&P), the credit rating agency, has published a report warning of large increases in repayments for mortgage borrowers with poor credit histories, whose fixed-rate agreements are coming to an end.

Such sub-prime borrowers could end up with their monthly repayments increasing by an average of 26%, and in some cases the increase could be as much as 60%.

There are an estimated 230,000 to 300,000 sub-prime mortgage borrowers in the UK and according to S&P around 80,000 of such homeowners are due to come to the end of their fixed-rate terms before the end of next year.

In terms of value this equates to £9 billion in sub-prime fixed-rate loans, with around £5 billion seeing the end of their terms in the first half of 2008.

The recent credit squeeze, together with the five base-rate rises since last August, has resulted in sub-prime lenders increasing rates sharply.

In the past six weeks, some lenders have increased rates by one percentage point or more. Lenders have also raised their arrangement fees and closed to new business

Most have reviewed their lending criteria, making it difficult for sub-prime borrowers to secure a competitive fixed-term loan and leaving them having to settle instead for more expensive “floating rates”.

As a result, S&P is also forecasting that the difficulties faced by sub-prime borrowers ending fixed-term agreements will mean a further rise in home repossession in the coming months.

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