Lockhart Grey Financial Planning Ltd

Sub-Prime Mortgages – Ancient History?

You are certainly not alone if you have experienced financial difficulties at some time in your life. This could encompass anything from missing a credit card payment to filing for bankruptcy. Unfortunately, this will almost certainly affect your ability to benefit from a competitive mortgage deal. In fact, since the credit crunch hit the UK mortgage market, any irregularities or black marks on your financial history could prevent you from getting a mortgage full stop.

Bad credit mortgages (also known as impaired credit, or sub-prime mortgages) have, until recently, been generally available to UK borrowers. In recent years, a number of lenders decided to offer special mortgages to those classed as sub-prime borrowers (typically with a higher rate than standard deals). This included anyone who had ever been declared bankrupt, who had fallen into mortgage or rent arrears, county court judgements (CCJ’s), poor credit rating, debt consolidation, no proof of income, self employed, short employment history, an individual voluntary arrangement or Scottish Trust Deed, or if you have suffered any other debt problems.

Unfortunately for those individuals seeking a bad credit mortgage at the moment, the UK sub-prime mortgage sector has been severely affected by the credit crunch, resulting in a massive contraction of the market. Many sub-prime providers have closed their doors to new borrowers throughout 2008. On those sub-prime deals still available, rates have increased dramatically and a much bigger deposit will be required to secure the product than was previously required.

As a result, if you are currently on a sub-prime deal, your repayments could rise significantly once your initial mortgage comes to an end. If you still require a bad credit mortgage, you will almost certainly find it more difficult to access a new deal since the market is now a lot smaller than it was up until the final quarter of 2007.

Sub-Prime Solutions

Once you have been with a sub-prime lender for at least three years and you have kept up with your mortgage payments, you should have repaired your credit rating, at least to some extent. Before the credit crunch, you would have been able to return to the mainstream mortgage market and be able to source a new mortgage deal at a lower interest rate.  However, you may find the transition from bad credit mortgages to mainstream mortgages considerably more difficult now. Most lenders have re-assessed their lending criteria, which has had an impact on their attitude to risk and are now reluctant to lend to those with any previous financial problems, no matter how small.

Pre-credit crunch, there was a large variety of bad credit deals available, many with extremely competitive rates. Some sub-prime borrowers were even able to get rates that were only marginally higher than some standard mortgage deals. However, such a selection is no longer available as the majority of lenders have tightened their lending criteria and ceased lending to riskier borrowers, such as those who require bad credit mortgages.

It may well be that you were classed as a mainstream borrower who then subsequently got into financial difficulties.  Your current lender may be reluctant to offer you a new deal because of this.  If possible, it may be worthwhile waiting on your lender’s current Standard Variable Rate until you source a new product or lender that suits your current circumstances.

However, if you do need to a mortgage or re-mortgage to a new sub-prime deal, don’t give up hope just yet.

• Speak to your current lender to find out what kind of products it may be able to offer at the moment.
• It may also be a sensible idea to seek professional mortgage advice. A mortgage broker or qualified financial adviser will be able to search the market for new and appropriate deals and can look at your current financial situation and provide advice and a tailored solution about your options.  They may have access to a wide choice of mortgage deals, many of which may not be available direct to the public.

Think carefully about how much you can afford to put aside for your mortgage repayments and any associated fees.

However, don’t write off your chances of getting a mortgage before checking with a qualified Financial Adviser, you may find there is a deal to suit your circumstances.