Borrowers with poor credit history now have a greater choice of mortgages to help them get back on track with 118 new deals hitting the market in the last six months.
Investigations by Moneyfacts.co.uk revealed there are now 843 credit-impaired mortgages available, compared to 725 in February.
Whilst this is good news for anyone who has had difficulty obtaining a mortgage because of their poor credit history, Moneyfacts emphasised we were nowhere near a return to unrestrained lending experienced before the financial collapse a decade ago.
Indeed, Moneyfacts said the recent barrage of products into this market was a response to lenders trying to increase competition by branching out into niche areas, which included adverse credit.
Charlotte Nelson, finance expert at Moneyfacts, said: “Although credit-impaired mortgages are slightly risker, it is by no means a return to the lending style of before the financial crisis.
“Back in August 2007, there were 5,106 credit-impaired deals which accounted for a whopping 55% of the residential mortgage market.
“At the time lending principles were significantly looser than today. Lenders are now required to delve a lot deeper into a borrower’s financial history to ensure they are able to afford the deal.”
Improving your credit score
As such the advice to anyone with a poor credit history considering these kinds of deals is to first check their file online and amend any errors. Moneyfacts said, if they feel their score is low – trying to improve this will boost a borrower’s chances of acceptance.”
But while things have improved when it comes to choice for borrowers with bad credit, rates are not so attractive. Moneyfacts’ data shows the two-year fixed rate for these deals has risen by 0.17% in the past six months and now stands at 4.52%.
High price warning
Indeed, average prices are far higher than those for standard mortgages. Currently an average two-year fixed rate mortgage is 2.54% which is nearly 2% lower than the credit-impaired average.
Nelson said: “While the difference may appear stark, the higher prices do reflect the extra risk that is involved to the provider.”
She added: “These deals offer borrowers who have experienced minor issues in the past a lifeline to get back on track once more. However, any borrower considering this as an option should first seek advice from a financial adviser to ensure it’s the right choice for them.”
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