Consumers Set To Face Financial Shock
Homeowners may see that their day-to-day finances are set for a “shock”, according to new reports.
In research released by Moneygate, thousands of Britons may witness their mortgage repayments surging by as much as 50 per cent over the coming months as banks and building societies re-classify them as being high risk when judging their ability to make payments. This in turn will see them be labelled as sub-prime borrowers when they come to remortgage, thus leaving them with interest charges on their home loan above the market average. And as a result, such a rise in mortgage costs could impinge upon their aptitude for servicing other demands on their spending, for instance credit cards and loans. Sub-prime mortgages currently make up some ten per cent of all home loans in Britain, although this figure was suggested as being due to rise imminently.
Dennis Reed, director for the internet mortgage broker, reported that the mortgage sector is in a constant state of change. He said: “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.”
He added that it was extremely important that applicants are truthful when they look to take out a mortgage, advice that could also be applied to those wishing to borrow by taking out a loan.
“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 remortgage. 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,” Mr Reed asserted.
The news comes as the sub-prime lending crisis in the United States had caused financial services providers in Britain to become stricter with their lending criteria. According to Moneygate, this has meant that those with a “slightly patchy credit history”, who have previously struggled making loan repayments, are now faced with higher rates of interest than they would have done in the past.
Meanwhile, consumers with a record of failing to pay loans, overdrafts, credit cards and other forms of borrowing may find that such damage to their financial record has cut off their access to low-rate loans. However, those who are confident that they will now be in a position to make repayments may wish to consider opting for a bad credit loan. Earlier this year, figures released by Datamonitor revealed that the bad credit loans sector is set to grow over the coming months as more people struggle to keep up with their borrowing. Report author Maya Imberg said: “High levels of consumer debt coupled with more difficult economic conditions will drive the sub-prime mortgage market forward over the next five years.”
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