Sub-prime borrowers suffer as lenders' rates soar

Sub-prime mortgage lenders have begun hiking the rates borrowers must pay as a tumultuous credit market context compels them to limit their liabilities.

The cost of borrowing to mortgage lending firms on the wholesale market shot up recently as a result of instability in the credit market.

Last week, Kensington, a leading lender in the UK sub-prime marketplace, raised rates by 0.55 percentage points on its 'adverse credit' range of mortgages, and GMAC-RFC followed the trend.

Meanwhile, Northern Rock has indicated its intention to raise borrowing rates on its sub-prime products by up to 1.25 per cent.

A spokesperson for the lender told Reuters raised rates were "purely in the sub-prime sector" and did "not spread to our prime range" of mortgages, which are designed for borrowers without a history of debt difficulties.

The increasing difficulty of finding affordable products with a poor credit history makes keeping a tight rein on finances and avoiding a 'black mark' such as bankruptcy even more essential for borrowers with a 'clean' credit record.

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