Mortgage rate danger lurking for thousands

Thousands of people on fixed-rate mortgage deals could find themselves paying higher rates when their current deals run out.

It is because of the fallout from the US sub-prime crisis which has forced lenders to tighten their lending criteria.

As a result, people who took out a mortgage a couple of years ago may have been considered low risk back then but will now be considered high risk for even a small stain on their credit history.

"The mortgage market is changing by the day. As lenders look to tighten their terms a person could be labelled a bad credit risk and sub-prime just because of a small financial error in their past," said Dennis Reed from Moneygate.

"The knock-on effect of that re-classification is very significant – a mainstream mortgage payer being shunted into the sub-prime market could face crippling interest charges of up to 2.5 per cent higher than average.

"People applying for mortgages will also need to be much more accurate about the information they give. For example, a county court judgement that in the past was not considered crucial, could now mean the difference of being reclassified as sub-prime when they come to re-mortgage," he added.

A number of mainstream mortgage lenders have already increased some of their rates in response to the credit crunch.

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