Monday, October 15, 2007
Homeowners with poor credit histories could face a 26% jump in their monthly repayments when they come to remortgage, a report has warned.
Ratings agency Standard & Poor's said around 80,000 people with adverse credit histories who are due to come off fixed rate mortgages by the end of 2008 faced huge "payment shocks" when they remortgaged.
It attributed the increase to a combination of recent interest rate rises, as well as lenders passing on to borrowers higher costs caused the current turmoil in global credit markets.
It added that many groups were also tightening their lending criteria, meaning some borrowers may be unable to remortgage at all.
The group said many specialist lenders who give mortgages to those with poor credit histories were now asking for larger deposits, and while they had previously accepted deposits of just 5%, most now demanded ones of at least 10%.
It estimates that the average person with a poor credit rating coming to the end of a fixed rate deal in the coming year will see their repayments jump by 26%, while those who are unable to take out a new loan and instead revert to their lender's standard variable rate will see payments soar by 60%.
The report said: "Lenders have begun to pass these incremental costs on to borrowers by re-pricing their loan offerings, with published rates in many cases rising by around 100 basis points in recent weeks.
"The combined effect of this and rising base rates
over the past 12 months is that borrowers who took out two-year fixed rate mortgages from late 2005 are facing one of the largest payment shocks witnesses since the 1990s, even if they are able to refinance."
S&P said someone who took out an interest only mortgage of £85,000 in October 2005 could have had a rate of 7% giving monthly repayments of around £500. If this person was able to remortgage at the end of next month they would be facing a new rate of around 8.25% at best, which would push their monthly repayments up to £589 a month, an 18% increase.
Overall the group said assuming that mortgages rates were around 1% higher than they were in August as a result of current credit crisis, the average borrower would see their monthly repayments rise by 26% or £167.
Source: http://ukpress.google.com/article/ALeqM5gZrg78kYbetF1IqWYm4-PAT-vZ1w
