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Repricing returns rates to reality

The recent repricing by non-conforming lenders will see sub-prime mortgage rates return to a sensible level after months of rates being too competitive, says John Charcol senior technical manager Ray Boulger.

Boulger says that although sub-prime borrowers will be feeling the effects of the latest rate increases after several major non-conforming lenders repriced last week as a result of the US sub-prime crash, the new rates will actually be a return to a sustainable level.

GMAC-RFC, Edeus, Kensington and Mortgages Plc have all repriced their sub-prime mortgage ranges over the last week. Kensington increased its rates on average by 0.55 per cent while MPLC increased its fixed rates by a minimum of 0.75 per cent, with some higher-risk loans going up by more than 1 per cent.

Boulger says that until recently, borrowers taking out heavy-adverse mortgages could get deals at 8 per cent which he says was incredible value for a borrower with a very bad credit history.

The cost of sub-prime loans is being pushed up by the credit crunch stemming from the US but swap rates have been going the opposite way over the last week.

Office of National Statistics’ figures show the consumer price index fell to 1.9 per cent in July from 2.4 per cent in June, leading many commentators to believe there will not be a bank base rate rise in September.

Boulger says: “The likelihood of the base rate going to 6 per cent by the end of this year is now very unlikely. Further interest rate rises would have been the main cause that could have created a property downturn.”

Savills Private Finance managing director Mark Harris says: “Given that rates on sub-prime products had fallen significantly as more lenders entered the market, it could be argued that rates are returning to more realistic levels. These are riskier products to riskier borrowers, which should be reflected in the pricing.”

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