Mortgages for UK Borrowers with Bad Credit
If you are looking for a mortgage but have some bad credit then things are about to get a little easier. There are some new mortgage lenders launching sub-prime mortgage products for borrowers with bad credit including people who have had serious credit issues such as bankruptcy and house repossessions.
Before the Financial Crisis (Credit Crunch) of 2007-2008, getting a mortgage if you had a bad credit history was quite straightforward. Lending criteria was quite relaxed and it was a case of your mortgage broker finding you the best rate with a mortgage lender who would take a risk on you and your bad credit. The more severe the bad credit the higher the interest rate. It seemed like a win-win situation where the lender would make good profit and the borrower would get onto the housing ladder in a market where house prices would continually rise.
Unfortunately the sub-prime mortgage market got its fair share of the blame for the credit crunch (financial downturn) and sub-prime lenders closed its doors. It was considered that many people took out mortgages who stood no chance of being able to repay them.
Now there is a new breed of sub-prime lending and they don’t like the word sub-prime as they now consider all customers prime borrowers. In their eyes some people suffered a black mark for genuine reasons such as unemployment or serious accident that prevented the borrower from meeting their financial obligations. There is a clear difference between those that could not pay their monthly mortgage payment for a reason and the serial non payer.
As well as lenders having a more strict lending criteria, borrowers will be assessed on affordability as well as why they suffered bad credit. If there was a genuine reason for the bad credit then the lender will seriously consider your application albeit that interest rates will be a whopping 8% which is a big difference from the high street lenders offering rates at less than 1.5% at the moment.
Getting a mortgage is not a “one size fits all” situation and there are ways to avoid bad credit mortgages such as the use of a guarantor. There are ways to improve your credit score such as being on the electoral role and keeping within your overdraft limit. Getting a copy of your credit file is always useful.
In these situations a “whole of market” mortgage adviser is the best person to speak to. Our advisers can tell you whether it is better repairing your credit history first and taking out a mortgage with a low interest rate or whether a special mortgage for adverse credit is the best option. You will find that mortgages that cater for borrowers with bad credit are only available through mortgage brokers.
Please contact us if you need more help. You can also read more about bad credit mortgages here
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