Non Standard Mortgages - Impaired Credit
Bad Credit Mortgages
Bad credit mortgages are the rough and ready name for mortgages
that are just as likely to be found under a number of other
guises, including impaired or adverse credit, sub prime
or full status mortgages. Between them, they account for
a pretty large section of the mortgage market.
It used to be the case that if you didn't have a perfect
credit record you couldn't get a mortgage from a high street
lender. But now, the lending market has become so diverse
that there are products to fit every credit profile. Very
distinct sectors, rare to find lenders that cater for all
of them equally.
Today's borrowers can choose from a large number of special
products that are aimed specifically at those people with
some form of impaired credit history. These mortgages do
not differ vastly from other mainstream mortgages - you
can usually find discounted, fixed, capped and even base
rate tracker bad credit mortgages.
However, there are certain key differences in comparison
to standard mortgages:
Impaired credit mortgages have historically offered rates
of interest that were significantly higher than normal mainstream
mortgages, often charging a premium of one, two or even
three percent more than mainstream conforming mortgages.
Although increasing price competition amongst lenders has
means that interest rates among sub prime mortgages are
getting ever-closer to the Standard Variable Rates offered
to mainstream borrowers, there is still a slight premium,
depending on the particular product and the degree of bad
credit that is acceptable to the lender. It is also almost
impossible to find discounted deals and introductory offers
that are as competitive as those offered to mainstream borrowers.
The approach to underwriting on the part of the lender
is different. Rather than use an automated credit scoring
system, most lenders that service this sector of the market
adopt a case-by-case approach. A non-conforming lender is
more likely to lend to an individual, but is likely to be
rather more conservative in terms of the amount that they
are willing to advance.
As well as being less willing to loan large sums of money,
bad-credit lenders are usually more demanding in terms of
the size of the deposit you are required to contribute to
the asking price of your chosen property. Many impaired
credit lenders are not willing to advance more than 75%
of the property value.
A final feature of many impaired credit mortgages, though
one that is not by any stretch unique to them, is the fact
that there can be extremely severe early redemption penalties.
These can be more onerous than with mainstream mortgages
both in the size of the penalty that will apply and in terms
of the length of time for which the penalty period lasts.
