Global economy reels from mortgage debts
You may have seen that global financial markets have been in turmoil as a result of problems with so-called "sub-prime" borrowers in the USA. Sub-prime is a term lenders use to describe people who they believe represent an above average risk of not being able to repay their loans. In the US, a large amount of money was leant out to sub-prime mortgage borrowers who have now begun defaulting on their mortgage repayments.
The knock on effect of all this could be that many of us will find it harder to borrow large sums of money (and end up paying more for it) as finance companies tighten their lending criteria.
Don’t get caught up in the rates crisis
If the credit crunch does start to pinch, MoneyExpert has some information you’ll need to know and a couple of tips to avoid being caught out.
Around 600,000 borrowers a year are already being rejected each year when they apply for credit such as mortgages, loans or credit cards. MoneyExpert estimates that of these rejections, around 400,000 of them were for mortgages. In an environment where credit is harder to come by lenders could become more selective about the people they lend to, or charge more for their services.
The number of mortgages available to sub-prime lenders has been shrinking fast since the end of 2006 when there were over 2500 deals available. Today there are less than 1500.
Those sub-prime mortgages that remain are also likely to be expensive with fees which could start to account for anything from around 6% to 10% or more of the amount you wish to borrow. Lenders say they’re taking on a bigger risk by giving money to people who have missed payments in the past, so they charge fees and higher interest rates to cover that risk.
According to MoneyExpert.com there has been a 46% rise in the number of mortgages with an application charge of over £1000.
While there’s little you can do about the global economy you can still improve your chances of getting mortgage or loan by taking a look at your credit rating.
A credit rating is a number that lenders assign to you based on the information you tell them and publicly available information about your financial dealings. If you have a regular income stream and have always been prompt paying bills and ensuring that cheques don’t bounce then you shouldn’t have anything to worry about. If on the other hand you’ve run up large debts and have struggled to pay them off, things could be a bit trickier.
Getting hold of your credit report
If you’re not sure how you stand up then it’s worthwhile requesting a copy of your report. You’ll be able to get one copy free from providers such as CreditExpert.
Once you have your report ensure all the details are correct. If you notice something is wrong, phone the credit report company and ask them to change the details.
There’s a simple way of finding out the rates you’re likely to be offered on a large loan. MoneyExpert offers a simple Credit Profiling service, which shows you what rates you can expect depending broadly on the kind of credit profile you have.
To find out which rates apply to you all you have to do is read the characteristics which describe someone with a Good, Fair and Poor credit rating and work out which band you are currently in.
The best loans for a good credit rating:
|First Plus – homeowner loan||6.3%||7.9%|
|Yourpersonalloan.co.uk (homeowners only)||6.3%||6.3%|
|Alliance and Leicester||6.5%||6.5%|
|Bank of Scotland||6.6%||6.6%|
Compare over 2,000 loan rates at MoneyExpert today
Consumer credit markets may be tightening, but as with most products there’s likely to be a suitable deal available to you if you take the time to do a bit of research. Even if you’ve had credit problems in the past you shouldn’t rule yourself out. Get a copy of your credit report and work out which loans you think you could afford.
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