Credit crunch hits homeowners

Market analyst Mintel said lenders had become increasingly cautious following the problems in the credit markets, and as a result many homeowners would be offered less favourable terms when they came to remortgage.

It estimates that around 9% of the UK's 16.5 million mortgage holders will now be considered sub-prime by lenders as a result of falling behind on debt repayments.

But it said a further 24% could also be considered a high risk by lenders because of their personal circumstances, such as being self-employed or not having a regular income, or because they had moved frequently or fallen behind with household bills.

It warned that in today's more conservative lending climate the unconventional financial situation of these homeowners will mean they face higher repayments and increased lenders' fees when they come to remortgage.

Toby Clark, senior finance analyst at Mintel, said: "The focus over the last few months has very much been on sub-prime borrowers, but they are only the tip of the iceberg.

"With lenders becoming increasingly cautious about who they give money to, many more mortgage holders will be offered less than favourable terms when they come to remortgage. Those coming off fixed-rate deals taken out before the recent interest rate rises will be particularly hard-hit."

He warned that many people may not be able to absorb these increases in costs and millions of people could start to suffer financially.

The group said in the worst case scenario people may find they cannot meet their new higher mortgage repayments and fall into arrears that could lead to their home being repossessed.

Research carried out by the group found that one in five people who are planning to get a mortgage in the future already foresee problems because of their income, working status or professional circumstances.