UK: Homeowners Face Payment Shock

September 29th, 2007

Via: Financial Times:

Homeowners with patchy credit histories are set to face a 26 per cent jump in their monthly mortgage payments due to the global credit squeeze, according to a new report.

Standard & Poor’s, the ratings agency, said that 80,000 UK borrowers who are due to come to the end of existing mortgage deals now face a huge “payment shock” because subprime mortgage lenders have been pushing up interest rates and tightening lending criteria in recent weeks.

Many subprime mortgage lenders such as GMAC and Kensington are now asking borrowers to put down a larger deposit of 25 per cent – rather than the 10 per cent which was required just a few weeks ago.

In its report S&P believes the global credit squeeze – which has seen lenders struggle to raise funding and securitise mortgage assets into the capital markets – will make it much harder for borrowers to re-mortgage on similar terms.

Tougher rules are set to prevent subprime customers with poor credit records from remortgaging because lenders may refuse to offer them a new deal when they come to the end of their current rate leaving them stuck on expensive standard variable rates.

This will mean borrowers’ monthly payments will rise sharply which could in turn lead to greater home repossessions and more borrowers falling into arrears.

More: ARM Resets in the U.S.

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