We explain what bad credit mortgages are and when they may be a suitable option.
Borrowers with a history of arrears and/or County Court Judgements (CCJs) may find it difficult to raise mortgage finance. Under such circumstances, bad credit mortgages may be a solution.
Sub-prime mortgages can be arranged at variable, discounted, stepped discounted, fixed and tracker rates. However, the variable rate to which they ultimately converge will be higher than that of prime mortgages, reflecting the riskier nature of the lending.
The terms typically include arrangement fees and penalty periods for early redemption. This can mean that the borrower is locked into an uncompetitive rate for some years.
Different lenders will accept varying amounts of adverse credit history i.e the number of CCJs, number of months of arrears on previous credit, and will take into account when the defaults occurred and if the borrower has tried to improve the situation.
Typically this type of borrowing is arranged via a mortgage broker as a number of lenders may need to be approached before your circumstances are accepted.
Advantages
- A mortgage can be obtained when it would otherwise not be offered.
Disadvantages
- This is a risky area of lending. Such loans are therefore characterised by higher rates of interest.
- Higher arrangement fees are often charged.
NB This information is provided to give you an overview of the different types of mortgages available. It is not comprehensive and you should not base your mortgage decision on the information found here. We recommend you seek professional advice in order to determine the most suitable mortgage for you.
