A bad credit mortgage may be the only way you'll be able to buy a house if youve had problems with credit in the past. But adverse credit mortgages arent just for those whove struggled. You may have an adverse credit history even if youve done nothing wrong!
What are adverse credit mortgages?
Adverse credit mortgages may also be called a variety of different names. These names all add up to the same thing - a mortgage that has been structured for an applicant who has a bad credit history. This does not necessarily mean that someone looking at
- Non status mortgage
- Sub prime mortgage
- Non standard mortgage
- Credit impaired mortgage
- Poor credit mortgage
- Bad credit mortgage
- Bad credit home mortgage loan
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Certainly a bad credit history and loans bad credit could mean a record of county court judgements CCJs bounced cheques mishandled debts and bailiffs on the doorstep. Equally it could mean nothing more than the fact that you have never previously applied for credit and therefore have no credit track record at all! In between we may add in the self-employed who dont have a long enough record of accounts to satisfy standard lenders and those who have moved more frequently than the norm in the last couple of years.
What is a bad credit mortgage?
The classic bad credit mortgage is a mortgage that will help you get on the property ladder even if you have made bad credit mistakes in the past which may include defaults on a previous mortgage or problems with rent payments. The major distinguishing factor that separates a bad credit mortgage from an ordinary mortgage is the interest rate. If you have a bad credit history you will be made to pay for it!
Banks and building societies like to think that they will get back the money they lend. If they think theres a greater chance that this might not be the case that you are a bad credit risk theyll put a risk premium on the cost of borrowing. So youll still be able to buy your home with a bad credit mortgage but itll cost you more in the early years.
As long as you manage to keep up the repayments on your bad credit mortgage you will be rebuilding your credit record and the time will come when you will be able to remortgage at the cheaper rates that are generally available to other people.
A bad credit record need not stop you getting a mortgage but the only way to improve a bad credit record is to show that you are capable of making the repayments required over a reasonable period of time. Most people who take out a bad credit mortgage and maintain the payments are able to remortgage to a cheaper rate after about three years.
What bad credit mortgages do is allow you to climb out of your adverse credit background towards property ownership.
Who offers adverse credit mortgages?
Not all mortgage lenders offer bad credit mortgages. When you apply for your mortgage the lender you approach will check your credit rating and compile a credit score. This is a way of helping the lender to decide whether you will be a good or bad credit risk for its money.
The majority of people will qualify for a standard mortgage offer from an ordinary mortgage lender - theyll be part of the prime mortgage market. The remainder will be classified as sub prime. This is not an insult! It merely means that your credit rating is such that you dont fit easily into the standard mortgage lending pigeonholes.
If for whatever reason you are classified as sub prime you will need to go to those lenders offering adverse credit mortgages. There are several lenders specialising in the bad credit mortgage end of the market. Some focus exclusively on bad credit mortgage lending while others are the specialist subsidiaries of larger mortgage lenders. Rather than try to arrange one of these adverse credit mortgages yourself you may find it easier to go to a sub prime specialist broker who will be able to review whats available in the adverse credit mortgages market and recommend a bad credit mortgage that is right for your circumstances and needs.
Do I need a bad credit mortgage?
Merrill Lynch which owns Mortgages plc estimates the bad credit mortgage lending market to be worth around £30 billion a year - thats approximately 10 of the total mortgage market and larger than the Council of Mortgage Lenders estimate for the buy-to-let mortgage sector source Financial Times 280606.
So if you do need a bad credit mortgage youre not alone! But why would you need to be looking at adverse credit mortgages It could be any number of reasons including
- The information on your credit record may be wrong check it correct it
- You may have had bad credit problems in the distant or recent past including CCJs mortgage rent arrears IVA bankruptcy
- You may have an irregular or unconventional source of income
Ordinary mortgage lenders may also turn you down if you have changed address several times or if you are self-employed but are unable to furnish three years of audited accounts. Do not be tempted to inflate your earnings when trying to get a mortgage - this is a criminal offence. Not only would you lose the mortgage on discovery but you could face criminal prosecution as well.
The amount and the seriousness of the defaults and CCJs on your credit record if any will affect how you are treated by mortgage lenders and brokers. If your bad credit situation is the result of minor debts say less than £500 you should have no difficulty in getting a bad credit mortgage and providing the payments are made in restoring your credit rating.
However a consistent record of failure to repay repossession and perhaps even of bankruptcy will mean that you could find it virtually impossible to get even a bad credit mortgage and when if you do you will be paying a high penalty rate of interest.
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