Bad Credit Mortgages

What is a bad credit mortgage or sub-prime mortgage?

A bad credit mortgage also referred to as an adverse credit mortgage or poor credit mortgage is a type of mortgage available to borrowers with a bad credit record who would usually be rejected when applying for a mainstream mortgage.

If you have a poor credit history and do not think that you can successfully apply for a mainstream mortgage, then a bad credit mortgage could be the solution.

Pros & Cons of Bad Credit Mortgages

Pros

• You can buy a home even with bad credit record
• Your mortgage provider will not judge you on your past credit history
• You can improve your credit record if you consistently make your mortgage repayments

Cons

• Interest rates are higher than other mortgages
• You will usually require a larger deposit

Why are conventional mortgages not offered to applicants with a bad credit record?

Lenders mainly use the applicant credit history to assess if they are reliable. If you have a bad credit record, you are seen as a risky applicant by mortgage lenders.

A quarter of mortgage applicants in Britain today cannot get a mortgage because of their bad credit history. This is very much the case at the moment due to the current economic climate.

Problems originated in the USA when too many mortgages were given to buyers with bad credit history who could not make the repayments. This lead to what’s referred as the 'sub-prime mortgage' crisis which is currently affecting us. Because of this, lenders don’t offer mortgages as easily as they used to.

How do I apply for a bad credit mortgage?

You apply for a bad credit mortgage using specialist mortgage providers (and in some cases conventional mortgage lenders). Specialist providers acknowledge the fact that the financial difficulties you had in the past don’t necessarily affect your capacity to make payments for a new mortgage.

If you successfully apply for a bad credit mortgage and manage to make the repayments over a period of time, your credit history will get better. You will be considered to be more reliable and as a consequence of this, you could be able to get mortgages with better rates.

Specialist lenders normally work in collaboration with an independent adviser and it could be difficult to apply for a bad credit mortgage directly with the mortgage lender. If you apply directly with a provider and your application is not successful this could have a negative effect on your credit history, making it even more difficult to apply for a mortgage in the future. We therefore recommend that you speak to a professional adviser, who can understand your current circumstances and find the best bad credit mortgage for you.

What factors contribute to a bad credit report?

There are many elements that can contribute to a bad credit report for example: being unemployed or self-employed, missing cards or mortgage payments, not having a bank account, not being registered on the electoral roll.

You cannot guess what the future will hold for you. All sorts of things could affect your financial health, and one missed mortgage payment is all it takes to negatively affect your credit history.

Your bad credit history may not be applicable if things took place more than 3 years ago. Conventional mortgages with better rates may be available to you. In order to find out if you can apply for a mainstream mortgage, we would strongly advise that you contact a professional mortgage adviser.

We would recommend that you become familiar with your credit report. You must make sure all the information is correct on the report as errors could prevent you from getting a mortgage. By understanding your credit history, you can have an idea of the rates you are expected to be charged if you apply for a bad credit mortgage. There are many businesses such as Experian or Callcredit that allow you to check your credit report, directly on the website or by post.

Are there any disadvantages associated with a bad credit mortgage?

The rates are generally worse than mainstream mortgages. There are more conventional mortgage providers than bad credit ones, so the competition is higher and the interest rates on offer are typically better. More applications are rejected by specialist mortgage lenders than conventional mortgage providers.

Different mortgages are offered to you depending on how your credit history is, so it is important to get in touch with a professional financial adviser who can determine the best option.

The deposits you need to provide for a bad credit mortgage are in most cases high, usually 20%. If you can afford to provide an even bigger deposit, you may be offered better rates.

If you have a bad credit history, it is crucial that you make sure that you can afford the monthly repayments. If you cannot make the repayments, you may have to face very high rates which would make the situation even worse than they are and could result in the loss of your property.

How to get a bad credit mortgage in the UK

Just fill in this short form and a qualified mortgage adviser will contact you to answer all of your questions, give you bad credit mortgage advice, and get you on your way to buying your home.