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Mortgage lenders in the UK are planning to get tough with the tens of thousands of homeowners that have taken out sub-prime mortgages, intended for borrowers with less than perfect credit histories.
Property experts warn that, as borrowers with particularly bad credit records reach the end of two year fixed deals, they won’t be able to find similar terms from lenders, and face the prospect of higher mortgage payments.

Previously, sub prime borrowers have been able to get a good deal if their home loan was 95% of the value of their property, but, in a harsher economic climate, the loan to value (LTV) ratio has fallen.

According to Bob Sturges, of sub-prime lender Money Partners:

“These are people who before the credit crunch would have been able get a maximum of 95% LTV. Now the maximum they can get is 75 or 80%.”

“When they come off their fixed-term deal they are going to be disenfranchised from the beneficial rates they have enjoyed. If they can’t afford the higher rates, they face the prospect of selling up and joining the rental sector. This will affect tens of thousands, if not hundreds of thousands of people.This means many home owners with sub prime mortgages will be forced to pay their lender’s Standard Variable Rate, which will mean higher mortgage payments, as these rates can be up to 4% higher than the rates on fixed deals. On a mortgage of £150,000 for instance, borrowers may face an extra £280 per month in repayments, which many homeowners may struggle to keep up with.”

The number of repossessions in the UK has already been predicted to rise to 1990s levels next year, and this crackdown on sub-prime lenders may make this situation worse.

If you are in trouble with debt, and have been unable to make or keep up with payment arrangements, it may be better to sell your house quickly to pay off your debts rather than wait until your house is repossessed‚which will seriously damage your credit record and your ability to borrow in the future.

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