FISCUS MORTGAGES - INFORMATION AND ADVICE

Bad Credit Mortgages

“I have bad credit so I won’t be able to get a mortgage.” It seems like such a fundamental obstacle that it would be too hard to overcome. You’d be wrong then; there are still a great number of bad credit mortgages available on the market for individuals that have adverse credit ratings and so there are some pretty competitive rates up for grabs.

CREDIT SCORING BY MORTGAGE PROVIDERS

Firstly, let’s just go back a step and lay the groundwork. All lenders will carry out some kind of credit check on the individual applying. As with all financial institutions that offer credit or insurance, they wish to study the risk involved in providing an inherently risky product, and in the case of loans, they wish to know that the money they are lending is likely to be paid back in an orderly fashion. In the UK, most lenders will ascertain this risk, in part, by using one of the big credit score agencies: Equifax or Experian. For more information on credit scores, please see our sister site, Fiscus Credit Cards, which has a comprehensive credit scoring section.

Different mortgage lenders have different application requirements and the credit score is just one of many measures used to decide on a mortgage application. Historically though, many lenders would insist on a good credit history before offering a mortgage and would reject all other applicants. However, times have changed. There is an acceptance that sometimes people have been unfortunate, and through circumstances out of their control, end up with a poor credit rating. Others may have been at fault in the past, but are now making a genuine attempt to make a clean start and become credit-worthy.

WHY DO LENDERS OFFER “BAD CREDIT” MORTGAGES?

Above all, mortgage providers understand two important things. The first is, irrespective of credit history, that people do not want to lose their homes. They accept that even though some people may have a bad credit history, these individuals have a great incentive to keep up with their mortgage repayments – they do not want to end up on the street. The second point is just as important for the lender: the property itself acts as collateral (or security) for the loan, meaning that they have a means of recouping the money paid out should it all go wrong.

So it means that there is now quite a lot of competition in the “bad credit” mortgage market. However, although there may now be quite a few providers competing within this market, your enthusiasm should be tempered somewhat by the fact that you poor credit will mean you still have to pay an excess level of interest. If you are an “adverse credit” individual, your history is still going to cost you, albeit less than in previous years.

As well as a worse interest rate than a normal “good credit” mortgage, the borrower will typically require a 5-10% deposit for the mortgage. Once you have begun your mortgage, it may be possible to see a reduction in rates in the medium-term, with some lenders prepared to cut interest rates if you maintain your repayments for a few years. At this point, it may even be possible to remortgage and switch to a cheaper (good credit) mortgage.

As stated previously, the competition in this sector has driven interest rates downwards, with many of the larger banks such as Halifax (through Birmingham Midshires) offering “credit solution” mortgages. We recommend you take a look at our mortgage tables, which allow you to compare rates and features on Adverse Credit Mortgages (arrears allowed) and Bad Credit Mortgages (CCJs allowed).

However, with this type of mortgage, as with all niche products, it is usually best to speak to a broker, as a lot of the largest institutions are still less prepared to offer these adverse credit products. If you fill in our quick mortgage enquiry form, we can have an Independent Financial Adviser (IFA) contact you within 24 hours, who can scour the market to find the best mortgage available to you.