TThe “subprime” mortgage industry closed in the wake of the 2007-08 financial crisis, but brokers say more lenders are returning to the market – some willing to lend to people who have gone bankrupt barely a year ago. .
On June 30, the new Masthaven retail bank became the latest company to open its doors to people who have suffered from financial problems, such as one or two missed mortgage payments, or who have county court judgments against them. , depending on the size and date of these CCJs. are.
Meanwhile, some of the existing players have reduced the cost of their transactions. Pepper Homeloans, which caters to those with “credit problems or previous financial difficulties,” recently announced that it has “cut” rates on certain products.
Its sales manager Rob Barnard was quoted as saying that “adverse credit records remain on file for 72 months, despite borrowers having been able to manage their finances in an exemplary manner in recent years.”
Everyone in the financial services industry is terrified of using the term “subprime” – in short, mortgages for people with bad credit histories – so you’ll notice that a new lexicon has emerged. is developed to describe the market, with “compromised credit”, “credit repair” and “complex premium” among the commonly used labels.
It breaks down into “mildly” impaired, when a person has had a small default on their credit score for a small amount, usually deposited by a mobile phone company; down to the “heavy bad guys,” which will be people whose credit rating has been destroyed by bankruptcy, serial defaults, CCJs and IVAs (Individual Voluntary Arrangements).
This is a “not on the main street” market. Most, if not all, subprime lenders are specialty companies that only sell through brokers. The most commonly cited names are Kensington Mortgages, Precise Mortgages, Bluestone, Pepper Homeloans and Magellan Homeloans, with Vida Homeloans another relatively new entrant.
The “smaller” the depreciation, the lower the interest rate – and vice versa. Thus, a person with a slight disability may be offered a two-year fixed rate contract of less than 2.5%. Pepper Homeloans introduced mortgages starting at 2.28% for those “marginally failing on a credit score”.
However, those coming out of serious financial trouble will, in some cases, be offered 8% or more. One of the highest rates we found was a three-year Magellan patch at 8.2% up to 70% loan-to-value ratio.
“At the lighter end of the market is Kensington, which has a ‘tiered’ approach. It’s right off the main drag, so to speak, ready to ignore minor credit issues. You’ll pay around 1% to 1.5% more than the major Main Street lenders, ”says Peter Gettins of London & Country Brokers. “Precise, at its most extreme level of level 5, will examine you if you have had up to five faults in the past two years. “
A huge increase in the number of defaults recorded on credit files by mobile phone companies, often for insignificant amounts – an issue Guardian Money has repeatedly pointed out – is at the root of much of the the new activity. “We are seeing more leniency on the defaults that have been recorded by the phone companies,” says Gettins.
Meanwhile, Ray Boulger at John Charcol says potential borrowers who have been turned down for a loan due to a minor default should consider smaller building societies. They do a “manual subscription”, which means that an individual will rate the requester rather than a “computer says no” approach.
But what about those with extremely poor financial histories? Gettins says Bluestone will consider applicants who came out of an IVA or bankruptcy at least three years ago, and will neglect up to four missed mortgage payments. He adds, “Magellan is probably at the most severe end. It will provide loans to bankrupts released just a year ago. But the rates are around 7%. That said, they have strict rules regarding your financial record for the past 12 months. “
Brokers say that while they accept concerns about bad lending decisions in the past, the criteria are very different today. Borrowers must go through the same affordability tests as conventional applicants and will be required to make a substantial down payment – typically around 20% of the value of the property they wish to purchase. Lenders are more likely to look at people who are financially imbalanced by a “life event” but who are back on track.
“Brokers and lenders have an obligation to verify that the loan is reasonable and appropriate,” says Gettins. “The era of” self-certified “loans [where borrowers could name their income without it being checked] are long overdue.