If you've been watching the news or reading the newspapers recently then you are probably only too aware of the recent troubles in the US economy, caused by the collapse of the US sub-prime market. Most dips and rises in the US financial markets are eventually felt here in our own markets, as seen more recently with Northern Rock (a UK sub-prime lending bank) customers queueing day and night to remove their life savings. But whilst on the face of it there appears to be comparisons between the US and UK sub-prime markets the reality is somewhat different. For a start, US sub-prime mortgages are managed in a very different way to the UK.
In the UK we're very fortunate that most mortgages (including sub-prime mortgages) are regulated by the Financial Services Authority (FSA). They regulate mortgage brokers and their products to help protect mortgage customers and ensure they receive a fair deal on their mortgages. US sub-prime Brokers are unregulated in most states and in recent years they've been signing up mortgages to people that you wouldn't even trust to look after your granny. Which is precisely where the problem has developed. Add booming US interest rates and sinking house prices to the melting pot and you begin to appreciate why US-based lenders are suddenly going bust and people's homes are beginning to be repossessed.
Again, this doesn't necessarily mean that the UK mortgage markets are going to follow the same trend. Fortunately UK lenders are still more conservative about who they lend to than US brokers and, excluding lenders such as Northern Rock, UK lenders are securing mortgages for their clients from their own balance sheets – in other words, it's money they own. The UK is also fortunate that although interest rates have increased recently they are remaining steady.
So, is there anything to worry about?
It's always difficult to say exactly what will happen in the UK finance market but my prediction is that the financial jitters we are currently experiencing in the UK are a short-term storm that should blow over by the New Year.
However, if you aren't convinced and want to guarantee your mortgage payments for the next few years to protect you from any interest rate changes or market fluctuations then look at getting yourself a fixed-rate mortgage. This means that you pay equal mortgage payments for the duration of the fixed-rate product.
If you're struggling with debt that you can't pay off then look to release equity in your property whilst house markets are still strong or consider lumping all your debts together with a debt consolidation loan.
Author: Chris Gardner, Director of National & Capital, a leading mortgage brokers based in Southend-on-Sea. National & Capital specialise in arranging debt consolidation loans, release equity mortgages and fixed rate mortgages to help people through the current credit crisis no matter what their financial circumstances.
