Northern Rock increases sub prime lending rates - what this means for you

Filed Under Finance

The news that Northern Rock will be increasing the interest rates on their fixed rate sub prime loans soon may not seem important to you at the moment, unless you have an impaired credit history and fall within the sub prime market.

However it is not just Northern Rock who are increasing their sub prime rates - other lenders such as GMAC and Kensington Mortgages are also raising their costs for sub prime borrowers.

What we are seeing is the effect of the credit crunch that I mentioned a few days ago, spilling over from America. Lenders are becoming more reluctant to loan to the sub prime market in the USA and it seems that some lenders in the UK are following them too.

So it’s starting to become more difficult for people with credit problems to borrow money, and it is often these people who need to remortgage or arrange debt consolidation loans to help get their finances back on track.

The trouble is that people are still borrowing, and today we learn that for the first time total national debt now exceeds the total national earnings.

So as we borrow more, but then struggle to repay our debts, we find that the costs of consolidation is becoming prohibitive. This can create a downwards spiral leading to severe debt problems and the risks of needing an IVA or filing for bankruptcy.

I’ve painted a bit of a bleak picture here, but we don’t want to see what is happening in the US mortgage market over here.

I see the move by Northern Rock and the other lenders as a warning. Lenders who once welcomed people with credit problems, are now changing their tune. If they don’t want to lend to those with debt problems, we all should consider whether high levels of debt is sensible.