U.K. Mortgage Market Falters After Meteoric Rise

London–After years of skyrocketing home prices, the U.K. is now experiencing an abrupt rise in mortgage defaults.Prices rose so high that a modest three-bedroom tract home in the London suburbs sold for $2.2 million at one point, according to the Los Angeles Times. But now–as loans become harder to obtain due to the global credit crisis–borrowers are agreeing to expensive and sometimes unclear home rescue plans that often speed up foreclosure.Foreclosures in the U.K. increased 21 percent last year, according to the London-based British Council of Mortgage Lenders.In January, Britain’s baking regulatory agency, the Financial Services Authority, said that 1.4 million mortgage holders will have to deal with payment increases of up to $420 a month due to interest-rate resets this year.”There is potentially a huge number of people who may be in difficulties,” Adam Sampson, director of the nonprofit homeowner counseling group Shelter, told the Times. “So many of the people we see are husbands and wives who have borrowed against both their incomes. . . . A substantial number have never had to verify their income to their lender.”Losing overtime income or receiving a smaller bonus can be enough to knock many overextended borrowers into the danger zone.As in the U.S., subprime borrowers are a problem. The U.K.’s subprime market–which includes an interest rate of about 9.5 percent–comprises more than 6 percent of all mortgages in the country; 23 percent of subprime borrowers were late on payments in 2006, a 200 percent increase from 2005, according to Standard & Poor’s.The U.K. housing market’s current condition isn’t helping. Analysts have predicted a flat or declining market in 2008. Even a quarter-point Bank of England interest rate cut this month may not help because many mortgage lenders aren’t passing the reduction on to customers, the Times said.”In the U.K., the subprime market is smaller [than in the U.S.], and it is less inherently prone to problems,” said Bernard Clarke, spokesman for the British Council of Mortgage Lenders. “But clearly, when you’re dealing with mortgages to people who have credit-impaired histories, there is almost by definition a greater likelihood of problems in that [type] of mortgages. And that is going to be compounded by the credit crunch.”