Credit crunch bites 1/3 mortgage holders

Wednesday, 28 November 2007 12:00 AM

The ongoing credit crunch in international monetary markets could cause severe financial difficulties for up to 5.5 million UK mortgage holders, according to research released today by Mintel.

This equates to one in three of the 16.5 million mortgage holders in the country.

Some 1.5 million homeowners are now classed as sub-prime borrowers, nine per cent of the whole market, whereas a further 4 million, 24 per cent, are also seen by lenders as high risk.

This is because they are self-employed, do not have a regular income, have frequently moved house or have fallen behind with household bills.

Together, these two groups account for 5.5 million mortgages - the so-called 'non-standard' market.

Tighter lending criteria in the wake of the credit crunch could make borrowing harder for this group as banks charge higher lending fees and increase interest rates.

"The focus over the last few months has very much been on sub-prime borrowers, but they are only the tip of the iceberg," commented Toby Clark, senior finance analyst at Mintel.

"With lenders becoming increasingly cautious about who they give money to, many more mortgage holders will be offered less than favourable terms when they come to remortgage.

"Those coming off fixed-rate deals taken out before the recent interest rate rises will be particularly hard-hit. As many may not be able to absorb any increases in costs, we could see literally millions of people really start to suffer financially," he added.

The trend could prove negative to the market as a whole, if conditions make the repayment of mortgages impossible for some.

"When repossessed homes go on the market, they often have low price tags so that banks can make a quick sale and recoup their debts. The housing market already looks finely balanced and there is a real danger that tightening credit could be enough to tip it over the edge," continued Mr Clark.

The non-standard market is worth £125 billion this year, 35 per cent of the total mortgage market. This is up 7.6 per cent since 2006.

"Demand for non-standard mortgages will continue to grow as people's financial circumstances become ever more complicated due to rising divorce rates and the growing popularity of self-employment.

"But ironically as lenders become increasingly cautious, these non-standard mortgages will become harder to come by, leaving more adults without the finances needed to buy property," concluded Mr Clark.

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