Sub-prime mortgages have been in the news rather more than usual in recent months, thanks to the crisis that had its roots in the United States. There, when the interest rate was low, many people took out mortgages that they would struggle to keep up the repayments on when mortgage rates began to rise. Well, mortgage rates did begin to rise, and the result was that of these mortgage holders began to default. Many financial packages that had been built up around these mortgages began to collapse, and the result was the credit crunch that has swept around the world.

The consequence for those in the sub-prime bracket in the UK is that they are finding it harder than ever to find a mortgage at a decent rate. In a similar way to that in which Egg had shed a number of its credit card holders because it has determined them to be a bad risk, mortgage lenders are picking and choosing to whom they lend (as they are perfectly entitled to do) and high-risk borrowers are top of the list to drop.

So, who falls into the sub-prime category of borrowers?

It includes people with poor credit records, or those with CCJs or who have been made bankrupt. Reasons for poor credit records have made the headlines, with some notoriously getting on the bad list for missing monthly mobile phone bill payments.

What about the self-employed, who might have difficulty in proving a high enough income to get a decent mortgage?

These fall into the category of non-status mortgages, which are mortgages offered by lenders to borrowers who have no proof of previous mortgage history, proof of income etc. The usual maximum loan to value is around 70% and a credit check is still carried out. However, non-status mortgage holders tend to fare better than sub-prime mortgage holders, and a clear distinction should be made.

Nevertheless, people wanting a non-status mortgage are advised to approach a mortgage advisor or mortgage broker who will be able to find them a deal where a High Street lender may not - and a refused mortgage application does your credit history no good at all.