There are signs in the financial markets that it may soon become more difficult to obtain adverse credit mortgages. For several years now lenders have been issuing adverse credit mortgages to people with low documentation and adverse credit histories almost at will.
Many adverse credit mortgages are also issued with high loan-to-value ratios and expensive interest rates. Some products also leave the borrower with no equity at stake in their home and therefore little personal risk. However, the softening housing market coupled with a blip in the US stock market may prompt lenders to change their ways.
Several finance companies in the USA recently experienced large dips in their share prices as they revealed losses caused by holding on to portfolios of adverse credit mortgages that have been experiencing unexpected levels of defaults. Several big lenders have also made public the news of massive write offs in their loan books due to sub prime mortgages.
Recent increases in interest rates have put financial pressure on borrowers that previously did not exist when they obtained their mortgages. This has lead to an increase in the level of arrears and the number of defaults on adverse credit mortgages.
Recent events in the share market have shown that punters are unwilling to invest in finance companies that carry portfolios of high risk mortgages. Because of this sub-prime lenders have to reassess their lending criteria for adverse credit mortgages. Some lenders have pulled the products completely from the shelves while others are merely reconfiguring their criteria for successful applications.
While it is likely that adverse credit mortgages will not disappear completely, the criteria on which they are assessed may be tightened. This should help stem the tide of defaults and arrears as mortgages will no longer be approved for people who simply cannot afford the repayments.
Because of the recent glitch in the US stock market being caused by adverse credit lending, many analysts are providing opinions as to whether they believe the same scenario could occur in the UK. Most analysts are convinced that the recent problems experienced on the stock market in America are not going to be replicated across the pond.
The UK's market for adverse credit mortgages does not exactly mirror its American counterpart. Lending criteria are different and loan-to-value ratios are lower and therefore less risky to the lenders. In addition to this, the underlying assets of UK adverse credit mortgages, namely the properties over which they are secured, belong to a property market that is continuing to perform very well. Many local property markets in the USA were greatly exaggerated during the property boom and now they are being left virtual ghost towns as their true values emerge.
The strength of the property market in the UK means that there is little chance of borrowers' falling into negative equity, which means that the situation experienced in the US regarding adverse credit mortgages will probably not be replicated in the UK. As long as the property market does not experience too much of a decline, the finance market will regain strength and adverse credit mortgages will become readily available again.
Got a Question? Ask.
Ask the community a question about this article:
Q&A Powered by:
Latest Finance Articles
Shopping For Auto Insurance
By: Brenda Williams | 07/10/2008
When you get your license for the first time before you begin driving you need to get car insurance as it's mandatory to have car insurance while driving. Car insurance can be rather expensive, especially for new drivers which is why you'll need to ensure that you're getting the best...
Taking 100% Responsibility - the Prerequisite for Creating Money & Marriage Success
By: Leslie Cunningham | 07/10/2008
It's a simple concept, to refrain from blaming and complaining, and yet it's a challenge to change a habit, especially one that everyone else has. Like sticking to your diet, when everyone else around you is enjoying chocolate cake. Keep reading and you'll find out how this relates to your marriage and finances. Then I'll share some action steps to help you become 100% responsible for your life.
Retirement Income Investing and Your Portfolio
By: Steve Selengut | 07/10/2008
Brokerage firm monthly statements are designed to promote either fear or greed, depending on the current market environment. Nowhere on your statement can you find numbers that report your net investment, your total working capital, or your true asset allocation. Current and projected income numbers are given little attention
Buy to Let Investors Get a Boost
By: Parmdeep Vadesha | 06/10/2008
Buy to let UK investors are in a prime position to take advantage of a new government plan to spur property market activity. The scheme aims to permit property buyers to buy properties worth up to
How to Buy a Repossessed Property for Below Market Value
By: Parmdeep Vadesha | 06/10/2008
Buying a repossessed property is what matters for investors who are keen on reaping high profits. But even with the advantages it poses, there are certain aspects you need to be aware of before you start on the task of acquiring your next property cheaply.
Brits Should Ensure They Have the Cheapest Energy Supplier
By: Abbi Rouse | 06/10/2008
With energy prices escalating steadily, consumers could knock considerable amounts off their utility bills by switching from their areas default supplier.
How to Analyze Commercial Properties
By: Lorenzo Hills | 06/10/2008
Financing commercial properties or income-producing real estate is not an exact science. It requires subjective analysis, experience, and an ability to be innovative and creative.
Is There Really Such a Thing as Free Student Credit Cards?
By: Sean Masterson | 06/10/2008
Looking for free student credit cards? Some insist they don't exist. Don't believe them. You can find them, you just need to know how to play the game...
More from michael sterios
Adverse Credit Mortgage Investors Seek Help
By: michael sterios | 23/08/2008 | Finance
Major financial institutions which hold billions of pounds in mortgage backed securities have been watching mortgagors default on their home loans in record numbers in recent times. Surprisingly these investors have not shored up their defenses against the rogue borrowers enough and as a result have been losing money hand...
Mortgage Lending Hits a New Low
By: michael sterios | 15/08/2008 | Finance
Approvals for home loans in the UK have hit the lowest level ever recorded for a single month. The blame has been set squarely on the credit crunch as lenders are not only finding it difficult to obtain the funds to lend to home owners but they seem unwilling to...
Repackaging Adverse Credit Mortgages
By: michael sterios | 15/08/2008 | Finance
What do you do with a massive package of adverse credit mortgages that no one wants to buy? This is the dilemma facing many financial institutions in the current economic climate. Several years ago it was easy to approve thousands of mortgages then bundle them together and sell them to...
Buy-to-Let Benefits From Market Slowdown
By: michael sterios | 15/08/2008 | Finance
The flagging property market has claimed many scalps over the past year or two. Most notable of these are specialist lenders who opened their doors to borrowers of questionable worth and home owners who have since been issued with repossession orders in record numbers. Amid all the chaos at least...
Time Heals All Wounds
By: michael sterios | 10/08/2008 | Mortgage
The current mortgage and loan market has undergone a period of turmoil recently that has been felt all around the world. The full damage from the fallout from the turmoil has yet to be assessed and this is partly because the pattern of behaviour in the lending market is somewhat different to what it should be.
Hedge Your Remortgage
By: michael sterios | 10/08/2008 | Mortgage
What a great life it would be if we could predict future interest rates. Imagine being able to wait it out on your remortgage until such a time as interest rates dropped by several percentage points, just as you knew it would. While this scenario is better placed in a science fiction movie there is a way to bet on the future price of home finance and always come up a winner.
Remortgaging Buy-to-lets After Bridging
By: michael sterios | 10/08/2008 | Mortgage
Getting into the buy-to-let property club can be difficult for novices particularly if they don’t have much money to fund the enormous costs traditionally required to gain entry. These costs include substantial deposits, stamp duty, legal fees, mortgage fees, and potentially furniture and fixture costs depending on how the property is going to be set up for renting out to tenants.
Credit Crunch and Self-Certification Mortgages
By: michael sterios | 20/06/2008 | Finance
With the credit crunch forcing lenders to evaluate their loan books and reassess the types of products they offer it would appear sensible to anticipate the demise of the self-certification mortgage. However the market for self-certs remains buoyant as lenders have not tightened the reigns as much as expected and...
Finance 
