Sub-prime mortgage holders are yet to feel the full force of the credit crunch, after a survey revealed that their repayment rates had risen by 2.55 percentage points this year.
Many of these mortgages, aimed at customers with weak credit histories, are set to come to the end of their fixed, low rate period, leaving many homeowners looking to remortgage through fresh sub-prime deals, or move into the mainstream market rather than take on the standard rate of their existing deal.
However, the Moneyfacts survey shows that the average sub-prime mortgage now costs £245 a month more than in June 2007. The repayment rate has risen from 5.75 to 8.3 per cent. Darren Cook, from Moneyfacts, said: "With the standard residential rate currently standing at 9.43 per cent, this may prove costly."
However, the outlook is not necessarily gloomy for all sub-prime customers. David Hollingworth, from London and Country Mortgages, said the outcome of the crisis depended on how sub-prime mortgages had been used. "If you used one to get over a one-off blip and you've got yourself back on track over the last two or three years, you should be able to approach the standard mortgage market as long as you have the equity on your house.
"However, there are people who have used sub-prime mortgages to just continually recycle their debt. For these people, this could be the end of the line and they could be facing repossession."
Mr Hollingworth added that the figures could be the "final nail in the coffin" for first-time buyers.
Previously, sub-prime mortgages were available at similar rates to standard mortgages, and in some cases actually undercut the mainstream market. But now the average sub-prime rate is 2.75 per cent higher than the standard rate.
"Those who have had difficulties in the past are going to find it even harder now, and you're not going to see sub-prime rates go back down to the near-prime rates of a few years ago," said Mr Hollingworth.Reuse content