Credit-impaired mortgages are specialist products designed for people who have experienced minor financial issues and were therefore unable to negotiate a new mortgage deal following the financial crisis.
Prior to the credit crunch, in August 2007, when lending criteria was far more relaxed than today, there were over 5,000 credit-impaired mortgages available, according to Moneyfacts.co.uk. Indeed, they made up more than half of the entire residential mortgage market.
In October last year there were 851 of these products on the market, but this has fallen in the last year and stands at 590 today.
Short-term rates
Rates, however, have fallen on some of these mortgages. Moneyfacts’ data shows the average two-year fixed-rate credit impaired mortgage is currently 4.36% which is lower than the 4.49% in October 2018. Three year deals were also down from 4.51% to 4.21%.
However, five-year fixed-rate deals were not looking as attractive for people with credit problems. Moneyfact’s data showed the average rates on these had increased since October by 0.16% to 4.92%.
Darren Cook, finance expert at Moneyfacts, said this was a ‘far cry’ from the average two-year fixed rate which was on offer to customers classed as ‘full status’ who did not have the bad credit history.
He said: “Not only this, but those borrowers who are looking to apply for a credit-impaired mortgage and lock their fixed rate in for a little longer may notice rates increasing.”
Getting good advice
Cook also warned anyone considering remortgaging with a credit-impaired loan to tread carefully.
“The credit-impaired mortgage market is considered a specialist lending sector,” he said, “so it’s no surprise that, according to Moneyfacts research, 91% of the total number of credit-impaired mortgage products are only available through a mortgage broker.
“It is clear that any borrower seeking a credit-impaired mortgage would be wise to speak to a mortgage broker first, regardless of whether or not it is required.”
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