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Homeowners have been warned that a slowdown in the housing market could lead to a crisis in the sub-prime mortgage sector, and the threat of repossessions.

Standard & Poor’s, a credit rating agency, expressed concern about the British sub-prime industry, which provides mortgages to people with poor credit histories who have been unable to get mortgages from more well-known lenders.

The warning comes soon after the US sub-prime market collapsed, as falling house prices left borrowers with huge debts, creating billions of dollars of bad loans.

Standard & Poor’s believes that the outlook for this sector in the UK depends on whether interest rates remain at relatively low levels or if there is a slowdown in house prices.

There is some concern over interest rates, with the Bank of England having raised interest rates on three occasions since August 2006.

Though the sub-prime market in the UK is not nearly as fragile as in the US, Standard & Poor’s are still concerned:

‘Nevertheless, overall arrears and repossession rates in the UK nonconforming sector are on the increase, looking forward, we expect a continued slow deterioration in arrears in the short term, as recent rate rises work their way through.’

Mervyn King, the Governor of the Bank of England warned last month that the interest rate rises were causing the market to cool, but he did not expect any crash, despite the problems in the US.

Property prices are continuing to rise across the UK, with the Financial Times house price index finding that the average house price in the UK rose by 8.1% year on year. However, much of this growth is centred on London and the South East, with growth of 12.2% nudging up the national figures.

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