Growth in UK Sub Prime Mortgages
September 5th, 2007 | by admin |UK House prices are increasingly unaffordable.A first-time-buyer with an annual salary of £25,899 would now have to save up to £25,600 for the deposit on a typical home. This is nearly 96% of their income. This is made more difficult by the fact many graduate first time buyers leave university with debts of upto £10,000.
If they did manage to get a mortgage, they would need to spend 45% of their take home pay on a mortgage. Leaving little room for other expenditure. It also means that they will be very sensitive to interest rate increases.
Because of the increased difficulty of getting their first home people are increasingly looking to unconventional mortgages as a way to be able to buy their house.
These unconventional mortgage are often lumped together under the category sub prime mortgages. These mortgages include:
Interest only Mortgages. - Reduce the monthly repayments but leave the homeowner requiring another method of paying back the debt.
Bad Credit Mortgages - Lending to people with bad credit histories. The chance of defaulting is higher and as a consequence banks charge higher interest rates. This is often the most profitable area of the market, but the experience of the US sub prime mortgage sector shows that small changes in interest rates can lead to significant problems such as defaulting on repayments.
Many of the sub prime mortgages are characterised by a special introductory offer. For the first 2 years, homeowners are given an attractive interest rate. But, then they are tied into a higher rate. It is often when this occurs that they struggle to be able to afford payments.