Dont despair, though there are more and more mortgages out there to help those with adverse credit records own their own home.
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Specialist mortgages
An increasing number of people now have to look beyond mainstream mortgages and the prime causes of this are divorce and separation. But other issues can make finding a mortgage difficult too illness, fluctuating income, unpaid debts, county court judgments (CCJs) against you and bankruptcy can all make it hard to get a toehold on the housing ladder.
Andy Barr, spokesman for Chelsea Building Society, said: People often dont realise that theyve got issues with credit until they apply. But it could be a student loan, unpaid utility bills if youve moved house or even a pound outstanding on a credit card when youve switched. You have to address the issues, but well even look at unsatisfied CCJs.
For anyone with a history of financial problems, it is now easier to get a mortgage than ever.
Lenders these days are a lot better at creating scoring systems and weighing up the risk.
It depends what the problem is: if its just a CCJ or two for a small amount and over a year old, you can go to a mainstream lender. Specialist sub-prime lenders such as Kensington Mortgages offer a wide range, from Near Prime to High Adverse, with unlimited CCJs and arrears and recently even added a right-to-buy mortgage to their range.
According to Thomas Reeh, Chief Executive of national mortgage broker blackandwhite.co.uk, the range of non-conforming and specialist mortgages available to customers who have challenging credit circumstances is growing rapidly.
He said: “Its estimated that more than 20% of borrowers have difficult credit circumstances and this sector of the market is now very competitive. There are very attractive deals available in the non conforming sector and the flexibility of lenders in this sector like Money Partners and Mortgages Plc is astounding. blackandwhite.co.uk has access to over 4,000 products in the non-conforming sector, so the choice is extensive.”
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The options
Rates vary depending on how much adverse credit you have, while mainstream mortgages start at around 4.5 per cent, for borrowers with light adverse credit they could start at 5.5 to 5.7 per cent. And for someone with heavy adverse credit, that could be a whopping 8 per cent.
Many mainstream lenders will consider applicants with limited and older county court judgments against them.
Many will also offer a decent loan to value, of up to 85 per cent, and some throw in freebies too, including free valuation and legal services. They will also offer a range of discounted, fixed or tracker mortgages.
For people with more serious credit problems, costs rise. Habitual bad payers will run into more problems than those who have had a tough spell.
Many deals carry high early-repayment charges, and though many offer a discount in the first year, when that cheaper period expires it may cost less to bite the bullet and stay than to try to change and incur charges of 6 per cent of the mortgage amount.
So what differentiates these so-called non-status mortgages from mainstream mortgages?
Mawdsley said: You could find yourself paying 3 to 5 per cent more. Some lenders will offer a deeply discounted rate, but watch out if its discounted to 6 per cent and reverts to 9 per cent, for instance, then thats a 50 per cent rise all of a sudden.
Many non-conforming mortgages have extended tie-in periods of three years or so. You could then move to another lender, but some lenders are wary of dealing with someone who has hitherto been with a sub-prime lender.
But people with a varied credit history can make good. Often, those who apply have experienced personal hardships that disrupt income-flows. But a non-conforming mortgage offers a stepping-stone back into mainstream borrowing if customers can maintain regular payments and rebuild their payment record.
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