UK Mortgage Lender Northern Rock To Up Sub-Prime Rate

By Stewart Douglas

Mortgage lender Northern Rock has announced today that its rates for sub-prime lenders will increase as of next week, by as muich as 1.25% in some cases.

In the announcement made today, the lender said it will no longer offer variable rate mortgages in its sub-prime range, and will up the price of fixed rate mortgages considerably within that secotr to reflect what it sees as a growing risk to liquidity.  

Additionally, growing repossessions within the UK as a result of expanding interest rates have made lending at the lower end of the market increasingly more risky.

The sub-prime sector, which loans to those with poor credit histories, has led to a spiraling liquidity crisis in the US, with a number of major lenders forced to the fringe of liquidation.

With ever increasing defaults in line with interest rate rises, analysts have predicted that the US situation could lead to a worldwide credit crunch, in which business investment and consumer lending would be more difficult to come by.

The Newcastle based lender also mentioned that it had assigned much of its high risk existing sub-prime debt to investment bank Lehman Brothers, in an attempt to remove the overarching risk of rising defaults from their portfolio.

The move follows similar steps over the course of this week by lenders ranging from HBOS to RBS and the Britannia building society, reflecting an overall tightening of the UK sub-prime lending market off the back of the US crisis which has led many to fear a potential global recession over the coming years.

With fears that the scale of the US crisis could be replicated on British shores, most major lenders have either increased their rates on mortgages to the sub-prime sector, or withdrawn their products from the market altogether.