One in five subprime mortgage customers miss payments

Over a fifth of all subprime mortgage customers in the UK have missed at least one repayment.

Some 21.73 per cent of so-called 'nonconforming' deals saw missed payments in the first three months of 2008.

This is up from 19.41 per cent in the final quarter of 2007, according to research from rating agency Standard and Poor's.

Furthermore, 10.6 per cent of subprime mortgage deals have seen arrears of 90 days or more.

The figures also highlight that more than £7bn worth of loans are at risk of default unless lenders agree to modify the loan terms.

Subprime loans are aimed at borrowers with poor or non-existent credit history, and witnessed a dramatic spike in popularity during early years of the new millennium.

The increase in defaults on such subprime products, particularly in the American market, has been the principal driving force behind the recent global liquidity squeeze.

With banks unsure which lenders are exposed to the defaulting mortgages, they have been increasingly reticent to lend to each other, limiting liquidity and slashing wholesale mortgage availability.

In a potentially more worrying development, there has also been an increase in the delinquency rate – defined as being in arrears for up to 30 days – in the wider market.

Up to 2.41 per cent of all mortgages have entered delinquency in the first three months of 2008, with 0.79 per cent missing payments for 90 days; up from 2.15 per cent and 0.62 per cent respectively in the final quarter of 2007.

The figures correlate with those seen two years ago, according to Sean Hanning at Standard and Poor's.

"The difference today is that borrowers are not being helped by rising house prices as they have been in recent years," he said.

"In previous years, homebuyers in difficulty could find another lender to refinance the mortgage. It could mean that now more homes wind up in repossession."

Chris O'Toole