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Sub Prime Mortgages Set to Affect UK

Many of the lenders for sub prime loans are changing the criteria for borrowers. This move could force many of the homeowners to sell their homes as they may have trouble in the near future on making the necessary repayments. The credit crunch in America has sparked an answering credit crunch in Britain. This means that many of the UK lenders are unwilling or changing the loan criteria for bad credit records.

A warning was issues from the British Bankers’ Association on November 24, 2007. They suggested that the housing prices are slowing down, which is going to affect the buyers market. The buyers market is going to decrease where there are not enough individuals willing to invest or that can invest in a new home causing a decline in the overall market. The number of mortgages in the last month has dropped by 17 percent due to the enforce criteria regarding sub prime loans. The bank also mentioned that approvals are down 37 percent, which is the lowest it has been in years.

Many experts are afraid that there is going to be a British sub prime crisis, much like the American crisis of this year. They believe that homeowners with bad credit records are going to be the most affected by the changes. The property market is going to become more unstable. Most of the heavy sub prime customers are going to be affected due to the end of the two year fixed deals most of them signed on for. This means that the interest rates are going to increase, and this unstable element will cause more repossession.

Sub prime loans, in the recent past, could be found for at least 95 percent of the value on the property. Now many of the mortgage lenders still offering sub prime loans are demanding the customer come up with 25 percent of the value of the home for a 75 percent borrower total. The mortgage companies are trying to get the loan-to-value ratio to change in a positive light for the companies.

Those who have had the fixed two year loan will be affected the most as the mortgage comes off of the fixed year rate. The yare going to see a increase in the interest rate. If the borrowers cannot afford the new interest rates they are going to experience more of a credit problem. This can potentially affect hundreds of thousands of people.

The borrowers that have insufficient equity in their homes and do not have any savings are also going to have trouble. They will be forced to pay a Standard Variable Rate that is rather expensive. This means they will again struggle to make payments, and possibly loose their homes. The sub prime loans are not the only loans to be affected by the credit crunch. Those with prime loans are also going to see an increase in the interest rate affecting those who can afford to have even a prime loan. Customers needing a mortgage will have to look over the deals carefully, even as prime loans.

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