Sub-prime mortgage rates set to increase rapidly

04 September 2007
Remortgaging may be the best option for homeowners with bad credit histories who are coming to the end of cheap, fixed-rate sub-prime mortgages if they are to avoid paying burdensome interest rates.

Lisa Barker, writing for the Observer, claims that: “Big rate rises are expected in parts of the troubled 'adverse' credit market, so borrowers should try for a mainstream mortgage.”

High numbers of defaulted payments in the US sub-prime sector have had serious repercussions for stock exchanges around the world and fixed rates on sub-prime markets have subsequently risen sharply. Ms Barker predicts that the after-effects will be far-reaching and will impact the market for some months.

Director at mortgage brokers Savills, Melanie Bien, tells the Observer: “The first thing any borrower coming to the end of a sub-prime deal should do is to see whether they could get a mainstream deal.”

She adds that those who have met payments consistently for a couple of years should be able to do this.

Some UK mortgage lenders have increased sub-prime fixed rate deals by up to 1.25 per cent and have withdrawn all sub-prime tracker products.

Sub-prime customers are not the only ones facing difficulties. Those currently benefiting from short-term fixed rates should also be aware of changing reversion rates – variable interest rates that apply when these deals come to an end – which have also seen increases from some companies, says Ms Barker.

She adds that reversion rates tend to be high compared with mainstream mortgages even if they have not risen recently.

Find out more about sub-prime mortgages and remortgaging