Bad Credit Mortgages
Are you having difficulty finding a mortgage because of a bad credit history?
You may have a bad credit history for a number of reasons such as previous mortgage arrears or debts caused by unfortunate circumstances like illness, loss of job or divorce. Some people's debts aren't triggered by any one factor; they just find themselves in a situation where they can no longer cope with their level of debts, leading to missed payments and a poor credit rating.
With the current recession many lenders are reducing the number of mortgages available or applying more stringent borrowing criteria, making it increasingly difficult for many people to obtain a mainstream mortgage. There are other groups of people that may be affected by these restrictions as well, for example, self-employed people, because they do not have proof of income.
If you fall into any of the following groups of people, then bad credit mortgages (or adverse credit) could be the best solution for you:
- Have you previously had mortgage or rent arrears?
- Have you defaulted on credit cards or loans?
- Have you had a former home repossessed?
- Do you have CCJ's?
- Do you have an IVA?
- Are you a discharged bankrupt?
- Are you self-employed, with no proof of income?
Fortunately, there are companies that specialise in providing mortgages to people in your position. Adverse credit mortgage providers realise that you shouldn't be penalised for your misfortunes, and that sometimes you need a way in which to get onto the property ladder. These specialist companies offer different types of mortgages, catering to a wide range of borrowers.
Bad credit mortgages are available to borrowers for the following categories:
Mortgages for home purchases
First time buyer mortgages -Helping those borrowers who may not have equity in an existing home to use as a deposit.
Re-mortgages - These can either be a further loan on your current property, or a switch of mortgage to another lender. Remortgages are a great option for low APR credit.
Self-certification mortgages and re-mortgages - Useful for self-employed borrowers as they do not have to provide proof of income.
Equity release - This usually involves increasing the mortgage on your property in order to obtain a cash sum.
Buy to let mortgages - These are not as widely available on the High Street as they were before the credit crunch, so a bad credit mortgage provider could help.
The types of adverse credit mortgages on offer vary from company to company, but can include repayment mortgages, where you pay off some of the capital borrowed as well as the interest each month, or interest only mortgages, where you only pay off the interest monthly, but usually have an endowment policy to pay off the capital at the end of the mortgage term. Both of these types of mortgages can have different deals regarding repayment of the interest, as follows:
Fixed Rate Mortgages - Where the lender fixes the rate of interest for a set period of time.
Standard Variable Rate Mortgages - Where the mortgage payments increase or decrease whenever the lender's standard rate does.
Tracker Rate - This usually increases or decreases in line with the Bank of England's Base Lending Rate at a set percentage above or below it.
Capped Rate - Where the rate is variable but will not rise above a set pre-determined level for an agreed period of time.
Discounted Interest Rate - Where the rate can rise or fall, but you receive a discount on the lender's standard rate for a set period of time.
It is best to shop around in order to find a bad credit mortgage provider whose acceptance criteria you meet, and to find the type of mortgage and interest rate that suits you. Generally, however, interest rates are higher with adverse credit mortgages, as the loan is considered a higher risk than usual.