A few years ago, mortgages for people with bad credit, known as sub-prime mortgages, were widely available, and lenders and brokers alike saw the sub-prime sector as a very lucrative area.
Bad credit mortgage rates were considerably higher than those for borrowers with a good credit history, but many such loans were granted, and a number of bad credit mortgage lenders emerged who specialised in the sub-prime sector.
The picture has now changed massively, with the credit crunch widely attributed to too many bad credit mortgages being granted, and to borrowers defaulting on these loans.
A poor credit history can arise as a result of loan payment defaults, County Court Judgements or bankruptcy.
At the present time, finding mortgages for bad credit can be difficult, although not impossible.
Many lenders limit the amount you can borrow, with some extending a maximum loan to value (LTV) as low as 60% (so you would need a 40% deposit, or 40% equity in your home if you were remortgaging). Similarly, finding a competitive bad credit mortgage deal that will lend you more than 80% of your home's value is especially difficult in the current economic climate.
Fixed rate mortgages are available, but it is much more common to find a tracker deal.Many adverse credit mortgages track the London Inter-Bank Offered Rate (LIBOR) so your repayments and interest rate would rise and fall in line with its movements.
Many mortgage for bad credit deals aren't available direct from the lender. Instead, you need to apply through a mortgage broker, who will also ensure that it's the best deal possible from a lender who will accept you, given your circumstances. However, when you do go through a broker, you should be aware that they do add a charge for using their services. Be sure to take this into consideration when deciding on the mortgage as the lowest interest rates may come from a broker who charges an extortionate rate, this could make it cheaper to go with a different broker, so be sure to shop around.