Is there any hope for bad credit borrowers?

We hunt out the extremely limited sub-prime mortgage options available

The sub-prime mortgage meltdown has been well documented and the UK market has been all but obliterated in the last two years. Many sub-prime lenders simply shut up shop, with others stopping all new lending and existing with a skeleton staff servicing existing clients.

Back in 2007 the sector was thriving with dozens of lenders distributing a vast range of products to borrowers with pretty much any level of bad credit history.

Undischarged bankruptcy? No problem.

Unlimited County Court Judgments (CCJs)? Step right up.

Massive mortgage arrears? We've got just the deal for you.

After all, with house prices booming the lender always had the secured property to fall back on, didn't they?

And rates were keen as mustard, with many bad credit borrowers paying very little more than mainstream mortgagors. It could be argued that the cheap deals on offer gave little incentive to clean up your credit history and get back on track, since there was always another deal to switch to at the end of your current one - whatever your financial problems!

That's not the case anymore though.

Few and far between

If you have a bad credit history, mild or serious, you will struggle to find a deal in the current market - especially if you try to go it alone.

But there are still some sub-prime mortgages available if you go through the right channels, albeit limited to borrowers with very mild credit problems. They are all available though mortgage brokers only, meaning you cannot access these products yourself via phone, online or in a branch. Indeed the lenders operating in the sub-prime market don't have branches.

Who is lending and what's on offer?

Platform Home Loans is part of Britannia Building Society and therefore now part of Cooperative Financial Services.

It is now only offering products to those with the mildest of credit problems in its 'Almost Prime' range. The broker-only lender will accept CCJs per applicant up to £500 providing none are in the last three months and a bankruptcy or IVA discharged or completed at least four years ago. However, it won't accept borrowers currently in mortgage arrears.

Current products are:

• Two and three-year fixed rates at 8.69%

• Two and three-year fixed rates (for self-cert borrowers) at 9.09%.

Beacon Homeloans

Part of the Beacon Group, it only operates through intermediaries and has a range of light adverse products on offer.

The lender will ignore any defaults, and will allow one mortgage arrear in the last year (providing it isn't in the last six months). It will also accept a maximum of £500 of CCJs in the last three years and ignore any before that.

Plus it will consider (but not necessarily accept) bankruptcies discharged and IVAs satisfied over three years ago, but none within the last three years.

The lender's current products include:

• A tracker rate (that tracks three-month LIBOR not Bank Base Rate) with current pay rates from 4.3% to 6.3%
• Two-year fixed rates ranging from 5.50% to 8.95%

• A three-year fixed rate ranging from 5.95% to 9.15%.

igroup

Part of GE Money Home Lending, igroup was well known for offering a wide range of sub-prime mortgages but the lender is now 'virtually mainstream' according to one broker I spoke to.

Indeed, it will only accept borrowers with one default in the last two years (and none in the last year). Plus the lender will accept no CCJs, bankruptcies, IVAs, or previous repossessions in the last 24 months or current mortgage arrears. But if you have very mild credit problems it could be worth considering.

It offers:

• A two-year fixed rate from 5.89%

• A two-year fixed rate for self-cert borrowers from 6.79%

Cheshire Mortgage Corporation

Part of the Blemain Group, it will consider offering mortgages to borrowers with more substantial credit problems than the lenders mentioned above. Indeed it claims on its website: "Any property, purpose or status of client are catered for. When other lenders will not consider a case, Cheshire Mortgage Corporation has specific plans for most circumstances."

The lender's products include:

• A one-year discounted rate at 9.9%, reverting to 11.9%

• A variable rate of 11.9%.

 On both of these mortgage the following criteria applies:

• No arrears in the last 12 months
• CCJs under £250 ignored if registered over 24 months ago and satisfied over one month ago
• Defaults under £250 ignored if registered over six months ago
• IVA accepted if conducted satisfactory for over 12 months
• Repossession accepted

• Bankruptcy accepted if discharged over 12 months ago.

Slim pickings

And that is pretty much all that's on offer if you have a bad credit history.

You may find that in certain circumstances other lenders (including mainstream lenders) will accept your application if you have an extremely minor adverse credit problem. But this will be rare and completely dependent on your circumstances, their discretion, and will certainly not be advertised.

Frankly, the sub-prime choices are so slim that there are many borrowers with medium to serious credit problems who will simply not be able to get a mortgage (though I am not suggesting this is a bad thing).

If you are a first-time buyer you will simply have to wait until your credit record is repaired, or lenders relax their criteria before you can get a mortgage. Check your personal credit record at www.experian.co.uk to see exactly what the lenders see when they do a credit check on you.

Stuck in sub-prime?

If you already have a sub-prime mortgage that is up for renewal your choices will be limited. You will revert to your lender's default rate if you do nothing (usually its SVR) which, with many specialist sub-prime lenders, is unfortunately often quite high.

If repayments at this level are unmanageable it could be worth talking to your existing lender to see if they can offer you more favourable terms - but don't hold your breath. And remortgaging to another lender is only an option if your credit problems are mild.

This presents a massive problem for many bad credit borrowers and homeless charity Shelter recently accused sub-prime lenders of failing borrowers who are behind on their repayments.

With sub-prime arrears running at 17% according to Standard & Poor's something needs to be done quickly to give affordable options to existing struggling sub-prime borrowers.

While some people have little sympathy for borrowers who have a history of bad credit, remember many problems were caused by life-changing events such as bereavement, divorce and redundancy.  Indeed, in the current climate, perhaps we are all just a gnat's hair away from becoming a sub-prime borrower ourselves.

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