There has never been a better time to find a bad credit mortgage
Vikki Jefferies, proposition director, Primis and Personal Touch
Research conducted by the Online Mortgage Adviser website has discovered that up to 70% of potential mortgage applicants fail to approach lenders or other service providers because they mistakenly believe that their personal circumstances or financial histories will preclude them from being considered.
The study, which was based upon a survey of over 2,000 people nationwide, found that almost 50% of respondents believed that a low credit score, or evidence of previous issues, would automatically disqualify their application. 33% and 15% (respectively) felt that a zero-hour contract or payday loan would prevent them from achieving a mortgage loan.
In addition, 15% thought that starting a new job on probation terms or taking parental leave (6%) would also affect their mortgage status; a depressing conclusion.
However, given the stringency of mainstream lending criteria and the unforgiving nature of affordability requirements introduced over the past decade or so, the fact that significant numbers of people are drawing these conclusions isn’t particularly surprising.
After all, it was the industry’s own recklessness in the years proceeding the financial crash and its willingness to cater to customers with unsuitable credit ratings that led to increased regulation and the subsequent emphasis upon responsible lending in the first place.
Yet, with economic and political conditions undergoing a sustained period of upheaval and uncertainty, the shifting social factors that these changes have engendered have effectively redefined vast swathes of the consumer landscape.
Many commentators believe that the current lending model has lost touch with the needs and requirements of certain custom-bases, while the results of the Online Mortgage Adviser survey have also suggested that there is a self-evident need for better levels of education amongst consumers as to mortgage eligibilities and the availability of products which reflect ‘niche’ contemporary requirements.
A pertinent example of all of these factors is the recent growth in bad credit mortgages. As readers will no doubt be aware, most high street banks and building societies will dismiss any mortgage application which demonstrates either contemporary or historical evidence of credit issues and/or other financial misdemeanours, such as pay day loans, low credit scores, missed or late payments, defaults, CCJ’s, IVA’s, debt management schemes, repossessions and bankruptcy, out of hand.
Yet, according to recent figures from Moneyfacts, there are a jaw-dropping 843 mortgage products aimed at customers with poor credit records currently available on the market, 118 of which have been introduced in the past six months alone. These account for 17% of all mortgage activity – an incredible figure.
But, how do we square these seemingly contradictory statements? Well, first things first, by taking rising levels of demand into account. According to the Office for National Statistics, household debts in the UK have risen to amongst the highest in the Western world, with Britons spending £900 more on average than received amounts of income over 2017, while 571,555 county court judgements (or CCJ’s) were registered against consumers in England and Wales over the first six months of 2018 (according to the Registry Trust). As a result average values of debt climbed to £1,460. So, obviously, indebtedness is a growing factor in this country, fuelling the need for bad credit loans.
However, with more and more specialist lenders entering this market (such as Precise Mortgages, Pepper Home Loans and Magellan Home Loans) and even a couple of high street outlets (such as the Metro Bank and the Cambridge Building Society), the reality for consumers is that there has never been a better time to find a mortgage which can accommodate credit issues than at the present. And yet 47% of people facing these problems are unaware that they are eligible.
Which is why it is becoming increasingly important for brokers to educate their clients as to the range and availability of adverse credit mortgage options. This isn’t to say that achieving a mortgage with a poor credit history isn’t going to be a lot trickier than for customers with clean records, of course, but that with lenders offering up to 95% (or even 100%) LTV products at the present time, credit scores and income requirements are becoming less of an obstacle than they were even a couple of years ago.
Moreover, with customers able to boost their credit scores (as well as their ability to borrow and repay in the eyes of lenders) by maintaining regular payments on credit card transactions, there’s absolutely no reason to assume that even consumers with the severest financial issues couldn’t improve their chances of approval.
Inevitably, the rates and fees which these specialist lenders offer tend to be higher than for conventional mortgages. According to Moneyfacts average rates on bad credit products currently stand at 4.52% as opposed to 2.54% for an average two-year fixed-rate mortgage. However, the ability to choose from a series of options that may previously have been discounted as ‘impossible’ is what’s at stake here. And this is where brokers can show their worth.