Northern Rock’s one of the UK largest bad credit mortgage lenders has raised its rates on fixed-term mortgages for borrowers with bad credit histories.
From 29 August, the cost of bad credit mortgages will go up by 1.25%. Bad credit Mortgages from Northern Rock will no longer track the Bank of England’s base rate.
The move comes as the US bad credit mortgage fiasco has lend to a worldwide stock market slump and credit crunch which as lend banks and lenders to tighten their lending criteria to people with bad credit history. Financial institutions are now a lot more cautious to whom they lend money to and are protecting themselves against any replication of the US bad credit mortgage crisis.
The UK has seen a sharp increase in home repossessions which is now at an 8 year high. This year over 14,000 properties have been repossessed, 30% more than last year, according to the Council of Mortgage Lenders. 1,25,100 households are behind in their mortgage payments.
Victoria Mortgages, a UK bad credit mortgage lender, withdrew its range of mortgages to future borrowers at the beginning of August, is expected to reintroduce them soon after increasing the cost by 2.5%, according to financial website Moneyfacts.
Other lenders, such as GMAC-RFC and Mortgages plc, raised rates on their bad credit mortgage range this week too.
Federal Reserve chairman Ben Bernanke has warned that the sub-prime lending market crisis could cost up to $100bn and credit losses associated with sub-prime mortgage failures were “significant”.
Over 100 mortgage companies have now gone bust, closed, seeking bankruptcy protection or have put themselves up for sale.
Defaults on bad credit mortgage in the first quarter climbed to the highest since 2002, according to the Mortgage Bankers Association.
RealtyTrac predicts repossessions and foreclosures are expected to reach 2 million in 2007. More than a million Americans lost their homes last year
It is expected later today George Bush will announce plans to allow government backed mortgage insurer, Federal Housing Administration, to guarantee loans for borrowers who are more than 90 days behind with their payments.
He is also expected to express the need to enforcement of laws strongly against irresponsible lending.
The UK bad credit mortgage market has tightened its belt this week making in increasingly harder for would be home owners with bad credit to find a mortgage.
With the global stock markets going into free fall over the past few weeks due to the Sub Prime (Bad Credit) Mortgage markets collapsing in America, UK lenders tighten their loan conditions with at least seven UK bad credit mortgage lenders raising their interest rates or withdrawn their bad credit mortgage ranges completely.
In the past it has been possible to get a mortgage with a bad credit history as long as you have not been bankrupted.
According to the magazine Money Marketing, lenders including GMAC-RFC, Unity Homeloans, Infinity Mortgages, Mortgages plc, Preferred, and DB Mortgages have raised their borrowing rates, or withdrawn their bad credit mortgage deals totally. Some lenders have postponed the relaunch of their bad credit mortgage ranges too.
In the USA Capital One withdrew totally from the Mortgage Broker Market, shutting down its operation completely. In the past 9 months nearly 120 mortgage lenders have closed, gone bankrupt or been sold off to the highest bidder; that’s around three a week. This is also having a huge effect on the unemployment market with thousands of people losing their jobs. So
UK lenders have not been as careless as the USA market, but some pundits think there is going to be problem in the UK once the higher interest rates kick in and people with bad credit histories find it more difficult to keep up payments.
This also could affect the housing market, with less people being able to find themselves a mortgage to buy a today’s inflated prices, could see a fall in house prices and new mortgages.
House Prices have fallen by 0.1pc in August according to Rightmove property website, which shows further cooling for the housing market. Average house prices in London are now £394,268
London has always been seen as an early warning signal of what’s happening in the housing market with the rest of the country following behind. It also shows that even London’s strong economy is not resistant to market forces
Miles Shipside, commercial director of Rightmove, said: “The latest evidence seems to indicate that we have now genuinely reached the limit of buyers’ ability to afford higher prices in current market conditions.”
