Do we have a sub-prime problem in the UK too?
Last year 1 in 5 mortgages approved were classed as being ’sub-prime’. These included approved mortgages for people who had a bad credit rating due to a poor credit history, and self-cert mortgages where applicants essentially do not have to show any proof of income.
These sub-prime borrowings accounted for 18% of the mortgage market. Sub-prime basically means lending to people who have an adverse credit rating. The good thing about credit ratings is that they aren’t static. They can be changed and improved over a period of time.
Your credit score determines how reliable you are going to be at paying back any borrowings such as loans, credit cards and mortgages. Obviously the worse your credit history, the higher risk you will be for the lender.
The self-employed are also classed as being ’sub-prime’ generally because they do not have to show any proof of income before applying for a mortgage, known as a self-certification mortgage.
Some people will view this as being a bad thing but no-one really knows what the future holds. We are in new territory now, as we have never experienced a market where we have mortgages for those with disadvantaged credit, a huge buy-to-let arena and many more self-employed people than ever before.
I suppose only time will tell how the mortgage market will fair in 2008 and beyond.
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