If you have a tarnished credit history, you may find it difficult to get approved for a mortgage. One solution is to look for bad credit mortgages, which are tailored to your individual circumstances. Bad credit mortgages, also called sub-prime mortgages and impaired credit mortgages, have been easy to access by borrowers in the UK until recently. These included mortgages for persons who suffered debt problems, had fallen into arrears, or had declared bankruptcy. Mortgages were also offered to persons with County Court Judgments. So, has the situation changed somehow and what options are available?
Until the credit squeeze and economic recession, over thirty creditors operated in this sector. Among the payers were high street banks’ specialist arms and global investment firms. Today, even lenders who are offering bad credit mortgages may require a large deposit, in the range of 20 to 50 percent, depending on the borrower’s credit score. Naturally, borrowers with a compromised credit are regarded as high risk by lenders. The fees and interest rates offered to them are considerably higher compared to those offered to their mainstream counterparts.
Specialist lenders feature the so called credit repair deals. You will be offered a higher rate of interest compared to conventional deals and will have to put down a considerable deposit. Once you have made payments for some period of time, which can be about 3 years, your credit score will improve, putting you in a better position to ask lenders for competitive rates.
Still, how much will a bad credit mortgage cost you? Similar to other applications, applications for bad credit mortgages come with costs attached to them. You may be required to pay a broker fee and lenders arrangement fee, a valuation fee, as well as solicitors fee. The latter fee is paid for the mortgage’s legal conveyancing. On the other hand, some financial institutions and entities will have special deals for potential borrowers, making their products more affordable. These can include perks such as lower application fee, free valuation, and so on. Keep in mind that bad credit mortgages may be offered with a higher arrangement fee than mortgages offered to persons with decent credit. This is not always the case, however, and the arrangement fees of standard lenders have increased in the last couple of years. So, the difference between fees charged by sub-prime and normal lenders is not really significant. As regards interest rates, they are calculated differently, with lenders usually using the London Inter-Bank Offered Rate. It is used as a base rate and may differ from the base rate of the Bank of England, which is used by many of the high street lenders.
Some applicants worry that the application process for a bad credit mortgage will take a long time. This is not necessarily true. Lenders will give you a list of information and documentation required as to approve you for a mortgage. These include wage slips, proof of residence, an ID, etc. Why lenders may require a more in depth information, if it is provided on time, the mortgage can take as much time to be issued as a standard mortgage.