AAre they a lifeline for legitimate borrowers who have suffered a financial hiccup – like losing a job – but are now out of the woods and rebuilding their finances? Or is this a throwback to the bad old days of irresponsible mortgage lending?
Whatever your take on subprime mortgages, you may be surprised to find that they are on sale again in the UK. Last week, the specialized lender Bluestone Mortgages launched in the UK, and targets people who have suffered from financial problems ranging from mortgage or rent arrears to bankruptcy. She closely followed the arrival of Pepper ready, which also caters to people who have had credit issues, such as county court judgments (CCJs) against them.
But these mortgages often come at a high price: some borrowers who take out a two-year fixed rate contract will be charged as much as 7-8%, compared to today’s best buy rates of as little as $ 1. , 54% on conventional loans.
Here, we take a look at who is eligible for these offers, how much they cost – and if you should give them a wide berth.
I thought subprime mortgages were banned? No, they were never banned, although stricter rules were introduced in the wake of the financial crisis. This type of loan was all but gone for a while, but in the last couple of years companies have started offering deals again.
But don’t call them subprime mortgages. Subprime is now a dirty word – instead, these companies talk about home loans for people with “bad credit histories” and “failed mortgages”.
Who offers these offers? Mostly companies that you’ve probably never heard of. In fact, you may have heard of Aldermore and Kensington, two of the most well-known lenders who operate on the “softer” end of this industry. Specialty businesses that will accept people with more serious and / or newer credit issues include Bluestone, Magellan Home Loans and Accurate mortgage loans. Pepper Homeloans, which went live in the UK in June, is probably somewhere in the middle. Other companies include GE Silver. There is even Foundation mortgage loans which offers rental mortgages.
Be aware, however, that bad credit mortgages are generally only available through brokers and financial advisers.
What sort of “credit problems” are we talking about here? Who is and is not eligible for these offers? Many people will be surprised to find that bankruptcy or a series of CCJs will not necessarily exclude you from a loan. All lenders have different criteria, which you can often find on their websites. And there are many companies that offer a wide variety of products. For example, Aldermore – which, like many lenders, says it assesses each case on an individual basis rather than relying on automated credit scoring – does not exclude people with “historic” mortgage arrears, provided that ‘there haven’t been any in the past 12 months, and CCJs / faults, provided they are more than three years old.
The fine print of Magellan indicates that a person who repossessed property as little as 13 months ago may be considered for a loan, “subject to confirmation that any shortfall has been, or is being, repaired. or has been forgiven ”, while a bankruptcy or debt relief order canceled more than 12 months ago“ will be considered ”.
How are the interest rates? Most, if not all, companies offer fixed rate deals, and many also offer mortgages that track Libor (the London Interbank Offered Rate, which governs the rates at which banks are willing to lend to each other on money markets), as opposed to the base rate of the Bank of England. Beware of large product fees. And also be aware that the maximum available loan-to-value (LTV) may vary depending on your situation.
In the case of a two-year fixed rate at the lighter end of the spectrum, Precise Mortgages, Magellan and GE Money all offer rates ranging from around 3.5% to 4%, says Peter Gettins, chief of produced by broker London & Country Mortgages. . At the heavier end, players such as Precise and Bluestone have two-year fixes priced at “north of 7%,” he adds. One of the highest rates we found was a Magellan three-year patch at 8.2% up to 70% LTV with a charge of £ 995.
Gettins says Pepper Homeloans “has very good rates right now,” adding, “They would be a great fit for people who fall under the Main Street credit rating. Pepper Homeloans will accept up to three missed mortgage payments in the past two years, provided there have been none in the past 12 months, and up to four CCJs or defaults in the past. past two years, provided there have been none in the past six months. Its two- and five-year fixed rates range from 2.24% to 5.35% and 3.75% to 6.15% respectively.
So what’s the best advice? The best thing to do is get a copy of your credit report before you start trying to get a mortgage. “This will show you the exact same things that lenders see,” Gettins explains.
And if you have relatively minor credit issues that are more than three years old, it’s definitely worth trying conventional lenders first.
Meanwhile, many smaller regional construction companies – such as Market Harborough, Marsden and Loughborough – will often be able to take a more flexible approach.