Sub-Prime Problem to Affect UK Mortgages

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Sub-Prime Problem to Affect UK Mortgages
By: michael sterios , Posted On: 2007-08-24

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The sub-prime mortgage crises has cl

imed several scalps in the US but has so far f

iled to heavily affect the rest of the w

rld. It is safe to say, h

wever, that mortgage industry analysts are w

iting with bated breath to see wh

ther the UK financial markets will be

dversely affected.

The US sub-prime loan crises has

volved from loose lending criteria leading to a s

tuation in which millions of borrowers w

th poor credit histories and volatile

mployment situations have been granted mortgages and l

ans.

During times of low interest rates, s

ch borrowers are able to keep up on th

ir loan payments. However, once interest r

tes begin to increase, the cost of m

intaining the mortgages can skyrocket, leaving m

ny households unable to cope.

This will

ventually lead to loan defaults and r

possessions amongst the general public. Simultaneously, in the w

rld of the financial markets, loan b

ndles worth hundreds of millions of d

llars become less profitable and therefore l

ss attractive to own.

In addition to a t

ghtening the lending criteria of mortgages and l

ans offered to the general public, the c

st of borrowing money on the

nterbank market for financial institutions also b

comes more expensive.

It is this part of the cr

ses that may spill over to the UK. F

nancial institutions lend and borrow money on the

ntebank market with little regard to g

ographical location. Ever since the problem w

th sub-prime mortgages emerged in the US, the

nterest rate charged on the interbank m

rket has increased.

This means that UK f

nancial institutions now must pay more

nterest to borrow money. The fear is th

t this increase in costs may be p

ssed on to the UK public by way of

ncreasing the interest rates attached to m

rtgages and loans.

To counter this, many UK l

nding institutions that also offer deposit

ccounts are offering customers higher interest r

tes on their savings. This move is d

signed to encourage people to invest th

ir money in savings accounts, which w

ll effectively give the institutions access to the c

sh.

This may give UK financial institutions

ccess to large sums of money at ch

aper rates than they can get by b

rrowing money on the interbank market. The s

vings fund may then be used to h

lp the institutions offer mortgages and l

ans to their customers without increasing

nterest rates.

The article Sub-Prime Problem to Affect UK Mortgages was Submitted by michael sterios through Articles.GetACoder.com network. Here's the additional information: Visit UK Mortgage Source for p-to-date news on Mortgages and to contact a mortgage advisor near you

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