Mortgagers with credit problems hit hard

The recent turmoil in the world stock markets has been driven by concerns over problems in the US sub-prime market, which specialises in lending to people with poor or no credit history.

Defaults on sub-prime loans have increased significantly, causing companies to revalue assets that were created by grouping large numbers of sub-prime loans together and then selling them on to other financial institutions. This impact on financial institutions - whether they be pension funds, hedge funds or other banks - is what has concerned the markets. But in the UK one of the most immediate impacts of this fall out has been on the very borrowers concerned. A specialist lender, GMAC-RFC announced earlier this week that it had increased rates across its whole sub-prime range by 0.75%. Earlier another lender increased its rates by a whopping 2.5%. These rises will impact directly those who have had credit problems in the past. There is every possibility that some lenders in the UK will be directly impacted by what is going on in this area of the mortgage market and that this may lead to further rate increases or the withdrawal of lenders for this area. That may well lead to current borrowers experiencing significant difficulties and therefore exacerbating the problems.

So what can people looking for a mortgage with previous credit problems do? The main point is not to over commit. There is little point in hunting around to get a mortgage deal that takes account of your past credit problems only for that very deal to cause you more problems! Make sure that you can not only meet the existing level of mortgage payments but that you can also meet them if they increase to a level that is realistically possible. Use affordability calculators to check what level of mortgage payments you can afford. Then check using a rate change calculator that you can still afford those payments if interest rates rise, either generally or for your lender specifically