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THOUSANDS of UK homeowners could face crippling increases in mortgage payments of up to 50 per cent, as banks and building societies move to re-classify them as bad risks.

The warning follows the “sub-prime” lending crisis in America, which is prompting banks and building societies over here to look at tightening their lending rules -hitting anyone with a slightly patchy credit history.

These mortgage customers currently enjoying fixed rate deals could find themselves labelled “sub-prime” when they come to re-mortgage getting hit with rates of up to 2.5 per cent above the market rate in the process.

Financial experts fear this could spell financial ruin for many householders and lead to a rush of repossessions. Fixed-rate mortgage customers with even a small blemish on their financial record should look to the market now before it’s too late.

Dennis Reed, director of the UK’s fastest growing internet mortgage broker Moneygate, said: “The mortgage market is changing by the day. As lenders look to tighten their terms a person could be labelled a bad credit risk and sub-prime just because of a small financial error in their past.

“The knock-on effect of that re-classification is very significant – a mainstream mortgage payer being shunted into the sub-prime market could face crippling interest charges of up to 2.5 per cent higher than average.

“People applying for mortgages will also need to be much more accurate about the information they give. For example, a county court judgement that in the past was not considered crucial, could now mean the difference of being reclassified as sub-prime when they come to re-mortgage.

“A lot of people are in for a shock and they should think about changing their mortgages as soon as possible before the market does. A skilled broker should be able to hunt around now for the best deals available and anyone with a mortgage due for renewal in the next six months should really check their situation, before it’s too late.”



So-called sub-prime mortgages currently account for about 10% of all home loans in the UK. Typically they involve people with a history of bad debts, or uncertain and variable incomes and incur higher rates of interest than normal.

Almost £25billion in loans was handed out last year to householders who are already unable to cope with their debts.

Independent market analyst Datamonitor says the sub-prime mortgage market jumped by 28 per cent in a year to £24.6billion in 2006.

And it estimates that it will reach £31.5billion by 2010, growing at a yearly compounded average rate of 4.7 per cent compared with the mainstream market's rate of 2.6 per cent.

And as more householders default on their mortgages - or make late payments - more consumers will fall into the sub-prime population. Datamonitor says high levels of consumer debt in an environment of rising interest rates means that the UK sub-prime sector poses more risk than ever.

Lenders have been taking on more risk because of increasing competition, in particular higher income multiples.

For more press information or to arrange an interview please contact Andy Barker at Results Network on 07855 352 303.

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