Sub-prime Borrowers Head List Of Repossessions
October 26, 2007
Seventy percent of homes that have been repossessed in recent months have been owned by people in the sub-prime category – those people with poor credit records. Of the 7,000 repossessed in the last three months, nearly 5,000 were on sub-prime mortgages.
There are no official figures on the size of the UK sub-prime market, but it is estimated that they account for less than one in ten of all outstanding mortgages, so the number being repossessed is disproportionately high.
Sub-prime mortgages have become more prevalent in recent years as people who struggled to find a lender, took out higher interest rate loans at higher risk to get the home they wanted. The high risk of sub-prime lending has caused widespread problems in the US and defaulters there have been the root cause of the credit crunch and the problems that Northern Rock has experienced in the UK.
The chairman of the Independent Bank Advisory Service, Eddie Wetherill, said: “Northern Rock was an accident waiting to happen and I do not think it will be a one-off. Banks have gone down the route of short-term profits at all costs.”
It does, of course, make some sense that sub-prime defaulters will be a higher percentage of repossessions, but the recent surge in the numbers suggest a certain amount of over-lending to borrowers who can’t really afford the loan and the repayments.
Figures from the Council of Mortgage Lenders show that in the first half of 2007 77 homes were repossessed every day on average, which was the highest rate for eight years.
The vulnerability of new home owners has also been questioned recently. Website fool.co.uk says that one in 20 first-time buyers could face negative equity as that is the ratio of people taking out new mortgages who are taking out 100% mortgages, and in a property market that is cooling rapidly, any house price drop will push them into negative equity