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Sub-prime rates to soar

The cost of sub-prime mortgage borrowing looks set to rise and several lenders admit that rates will have to increase substantially.

Merrill Lynch subsidiary Mortgages plc has confirmed it is repricing its sub-prime product range, with Edeus set to follow this week.

GMAC-RFC has already increased its fixed-rate loans and says it is repricing its Partners fixed rates, with new products this week for packagers.

Last week, Money Marketing Online revealed that Investec-backed Unity Homeloans and Infinity Mortgages had become the latest lenders to temporarily withdraw their entire sub-prime ranges from the market, following DB Mortgages’ earlier move. DB Mortgages and Infinity say they are on course to relaunch their products on August 20.

Mortgages plc has increased its fixed rates by a minimum of 0.75 per cent, with some higher-risk loans up by more than 1 per cent, with effect from August 21. Preferred has also recently repriced its range and it has changed its criteria as well as raising rates.

Edeus managing director Alan Cleary says it will be putting rates up by an average of 35 basis points. He says: “The cost of funds has gone up right across the board so the cost of borrowing is going to have to go up. This will not just be in the sub-prime market but in prime as well.”

John Charcol senior technical manager Ray Boulger says: “Mortgages plc is effectively pricing itself out of the market for the time being.”

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