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Sub Prime Market 'To Raise Rates'

Steve A Smith

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Consumers that are currently considering bad credit loans or have their money in a sub-prime mortgage may wish to look at their outgoings, following news that a number of the lenders in the sub-prime sector look set to raise interest rates on some of their products for borrowers with a bad credit history or credit problems.

According to a report from Reuters, market turbulence affecting costs, lenders and borrowers is set to lead to an increase in rates from lenders such as Northern Rock, Kensington and GMAC-RFC. What this means is that those who have sub-prime mortgages may need to re-evaluate their budgets, with potentially more money needed to cover their bad credit loan than was previously required.

Northern Rock, a lender that operates predominantly in the prime market, but also provides sub-prime mortgages on behalf of Lehman Brothers, is expected to raise interest rates on its bad debt products by 1.25 per cent, while Kensington has raised its rates by 0.55 per cent. Northern Rock has acted to make it known that such rises only affect its sub-prime involvement and not any of its prime loan offerings. “This is purely in the sub-prime sector and does not spread to our prime range, ” a spokesperson for the lender said.

Sub-prime lending accounted for eight per cent of the lending market in the UK in 2006, far less than in the US where it accounted for one fifth of lending in the same period, Reuters notes. Yet lenders such as HBOS and BM Solutions are also ready to lift rates in the sub-prime market, which could cause those consumers who have sub-prime and bad credit products to reassess their financial situation and rethink their spending, saving and repayment habits.

While such specialist lenders are looking to raise rates, UCB Home Loans, a lender that specialises in loans for the self-employed and those with variable incomes, this week dropped the interest on a number of its fixed-rate products.

The lender’s two-year, three-year and five-year buy-to-let mortgages have had their rates reduced by 0.25 per cent, 0.35 per cent and 0.4 per cent respectively, UCB has announced, effective from August 23rd. Across its self-certification products, rates for its two-year, three-year and five-year fixed deals were cut by 0.15 per cent, 0.25 per cent and 0.3 per cent respectively.

Keith Astill, managing director at UCB Home Loans, a subsidiary of Nationwide Building Society, was happy to announce the changes, which could allow access to credit for non-traditional borrowers. “We are pleased to offer these competitive reduced rates on our product range, especially as customers can also benefit from our free standard valuation incentive, ” Mr Astill said.

In July, a report issued by the Financial Services Authority (FSA) raised concerns over a number of firms acting in the bad credit arena, suggesting some firms were failing to adequately assess the ability of customers to repay bad credit loans. The FSA suggested that borrowers in the sub-prime area are “vulnerable” and need proper advice and assessment before a loan is agreed.

Steve Smith writes for 1 Stop Finance Shop. A one stop shop for all your loan requirements, from payday loans to secured personal homeowner loans , and UK tenant loans


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