The next sub-prime mortgage crisis

A fresh wave of mortgage problems is threatening to engulf the US economy: option adjustable-rate mortgages, or option ARMs. Option ARMs, which make up 25 per cent of the US mortgage market, offer a low initial rate which re-sets to a higher market rate after a fixed period of time, usually five years. They are popular with low-income buyers who can put off their payments until salary increases come through or the rising housing market (remember?) pushes up the value of their property.

However, the shortfall in the initial payments is then added to the mortgage, so that when the higher repayments begin they are even more painful than they would otherwise have been. That's not the only problem. This option to borrow more initially and add it to the total debt, known as 'negative amortisation', is limited, so that if the ceiling (usually 110-125 per cent