Risky borrowers see loans tighten

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Would-be UK home owners with bad credit histories are finding it harder to get mortgages, experts have told the BBC.

Lenders have tightened their loan conditions after being rattled by the US financial slump, which particularly hit the sub-prime market.

And those who already have sub-prime mortgages in the UK are set to feel the squeeze, with substantial hikes in their rates.

Small firms may also notice a change in the attitude of banks, experts say.

In the US, falling sales and decreasing house prices have made it harder for homeowners who have hit difficulties to sell their properties and clear their debts.

It may be becoming more difficult for you to reach the mortgage level you wanted Paul Reynolds MoneyQuest. <a class="" href="/1/hi/business/5144662.stm">Q&A: Sub-prime</a>

This has led to missed payments, which have in turn caused major problems for sub-prime lenders who have been prompted to close offices, cut jobs and stop making loans.

'More expensive'

Sub-prime mortgages are those sold to people with poor credit histories and thus a greater chance of defaulting.

Now UK sub-prime lenders are tightening the market, fearing the same could happen to them.

Those lenders who have announced increased rates over the last week are putting their rates up by between 0.5% and 2.5%.

The loans - already more expensive than standard mortgages because of the riskier nature of the business - are becoming more expensive, said Paul Reynolds of financial advice firm MoneyQuest.

"It may be becoming more difficult for you to reach the mortgage level you want," he told the BBC.

"Or you may be declined the mortgage that you want completely."

Analysts have said that, until recently, lenders had been offering mortgages to almost anyone who asked.

A lot of our business clients are finding it harder to get finance Jim CrookBlue Orchid

And last month the Financial Services Authority (FSA) found that some mortgage lenders and brokers were offering loans to people who might not be able to afford them.

All lenders who specialise in lending to higher-risk customers are regulated by the FSA.

The Council of Mortgage Lenders (CML) recently published an analysis of this section of the mortgage market and came to the conclusion that sub-prime lending in the UK had been far less risky than its counterpart in the US.

Sellers hit too

Some smaller businesses have also reported that they were feeling the ripples of the US crisis.

"A lot of our clients are finding it harder to get finance," said Jim Crook of Blue Orchid, a firm advising new businesses.

"We think that is happening because of tighter lending criteria form the banks."

Life may also be getting tougher for home sellers, say analysts, especially at the top end of the market.

Economists told the BBC that thousands of jobs may be lost in the City of London, with record-breaking bonuses cut, as a result of the turmoil in the market.

London estate agent Trevor Kent, who specialises in up-market properties, said he thought wealthier buyers had been scared off.

"We've enjoyed the benefits of their multimillion pound bonuses in previous years but they [potential buyers] have not been appearing this year.

"It's not that they're on holiday. I'm pretty certain they are just cautious."