Financial Advice UK - Mortgages News - "Shock" coming for borrowers

While the Bank of England has faced the dilemma of how much funding assistance to give to the UK markets without allowing backs to benefit directly, this situation is now being replicated in Europe...
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Mortgages News - Last Updated Wednesday 3rd October 2007

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"Shock" coming for borrowers

Wednesday 3rd October 2007

Thousands of people could face a 'payment shock' as a consequence of the global credit crunch, if their lenders decide to reclassify them as bad borrowers.

Some could see their monthly repayments go up by as much as 60 per cent, and the two million homeowners expected to come off fixed-rate deals in the next 18 months are particularly at risk.

Many banks are becoming stricter about how they lend and to whom they lend as a result of the credit crunch sparked by the collapse of sub-prime mortgage market in the US and anyone with a County Court Judgment over an unpaid debt or a poor credit record is expected to suffer.

Dennis Reed, the director of 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 judgment 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."