It is very hard to get a mortgage if you have a history of financial problems -- but it is possible
Two years ago sub-prime lenders were riding high in the UK mortgage market. There were dozens of them, from standalone businesses to US investment banks (Merrill Lynch, Morgan Stanley, and Lehman all had UK sub-prime arms).
Even the high street lenders were getting their piece of the bad credit pie with HBOS, Nationwide, and countless others running separate brands offering mortgages to those with a history of bad credit.
This market began as a small niche sector, where deals were looked at on a case-by-case basis by experienced underwriters. But as the sector grew it became more commoditised and deals were done by computers not people. Mortgage decisions could be made in a minute -- you typed in your details and were slotted into the appropriate category for your level of financial problem.
You might be classed as near-prime for example, meaning you had just slipped out of the mainstream market (if you missed a credit card payment for example).
Next came ultra-light, light, medium, heavy and unlimited adverse. The latter category was for those who had a more tarnished financial background -- maybe an undischarged bankruptcy order and recent arrears on their mortgage. But as long as they met certain criteria, lenders could price a deal for them -at a price.
The market was booming in 2006/7, with new lenders launching and more borrowers falling into the sub-prime category (not a good sign in itself!).
Crunched
Of course we all know what happened next. The credit crunch destroyed the sub-prime market.
Fast forward to 2009 and most of the sub-prime lenders have closed down. The US banks have retreated (or gone bust) and UK borrowers with bad credit will find it extremely difficult to get a mortgage.
But do you have any mortgage options left if your credit record is tarnished?
What is about?
Starting at the heavy end of sub-prime, there is little available for those who have declared themselves bankrupt.
According to mortgage data provider, Trigold, in January 2007 there were 56,000 mortgages available for people who had been declared bankrupt. In the two years since, this has dropped by a massive 2557%.
Furthermore, if a lender can be found, a borrower can expect to pay up to 16% interest according to solicitors Moore Blatch, which is warning people that they could become `unmortgagable' by declaring themselves bankrupt in 2009.
Indeed, the firm predicts that finding a mortgage at a reasonable interest rate is likely to be difficult for up to a decade and is advising that bankruptcy should be the very last resort.
However one broker told me that they could still get heavy sub-prime mortgages through Blemain Group which will consider lending to those with a serious bad credit history as long as they have a 50% deposit. Indeed the group's website supports this up saying they will take a view on most deals:
`Residential and Commercial Loans, Mortgages, and Bridging Finance - unlimited adverse considered.'
Lighter lenders
Another active operator in the non-conforming market is Platform Homeloans. You can only access its deals through a mortgage intermediary and it only offers products at the `lighter adverse' end of the bad credit spectrum.
The table below shows Platform's two and three-year fixed rate mortgages indicating the level of sub-prime -- either Almost Prime, Minor Adverse or Light Adverse -- and highlights the maximum credit problems you are allowed for any specific deal.
It looks confusing, and it is, which is why you are best taking a mortgage broker's advice. The mortgages below are split between the three sub-prime levels and then split again in terms of the maximum loan-to-value. The lender offers two and three-year fixed rates both currently charged at the same interest rate. It also has a remortgage special rate with free legal fees (not listed in table).
Platform sub-prime deals
| Level of credit problem | Bankruptcy | Mortgage Arrears | CCJs | Fee | Interest rate up to 60% LTV | Interest rate up to 75% LTV |
|---|---|---|---|---|---|---|
| Almost prime | Discharged bankruptcy over 4 years ago | None | £500 (none in last three months) | £2,995 | 8.39% | 9.89% |
| Minor adverse | Discharged bankruptcy over a year ago | One missed payment in last year (none in last three months) | £1,000 (none in last three months) | £2,995 | 8.69% | 10.19% |
| Light adverse | Discharged bankruptcy over a year ago | Two missed payments in last year (maximum one in last six months) | £3,000 | £2,995 | 8.99% | 10.49% |
Beacon Homeloans also offers sub-prime mortgages at what it terms a Prime Plus level. It will provide mortgages to those who have been bankrupt or entered into an IVA (Individual Voluntary Arrangement), as long as it was discharged or ended at least three years ago.
First National has four categories of sub-prime ranging from Near Prime Plus to Light and lends up to 75% LTV (80% on Near Prime Plus). Its interest rates range from 9.24% to 10.44% and fees are £2,995.
In addition, there will be lenders that will offer their mainstream mortgages to those with extremely slight financial hiccups -- a missed phone bill or credit card repayment for example. But if you have County Court Judgements, IVAs or bankruptcies (even if discharged) you may need a specific sub-prime deal and as you can see, they are neither cheap nor widely available. Better see a broker.
> Get free advice from a broker at our mortgage service