Adverse Credit Home Loans

Specialist products for people with a poor credit history

In a Nutshell...

Adverse credit mortgages can help people with a poor credit history.

• They are also known as sub prime, impaired credit and non-conforming products.
• Rates are higher than for conventional mortgages . You may need a deposit of as much as 35%.
• After a few years of making repayments successfully you can remortgage to a standard product.

What is it?

If you have a poor credit history from loan or mortgage arrears, been declared bankrupt, or have a county court judgement (CCJ), you have a high chance of having your mortgage application declined. Many lenders, acknowledge that having had financial difficulties in the past is no indication of your ability to repay a mortgage today. If this is the case, an adverse credit, or sub-prime, mortgage may be the best option.

Who qualifies?

You may find it difficult to find a conventional mortgage for reasons such as:

• You've previously incurred mortgage or loan arrears,
• You've had a country court judgement (CCJ) issued against you, or
• You've been declared bankrupt.

However, these are not the only causes of problems with simple credit checks and be refused a conventional mortgage - it can be because of very minor things. Some of the other reasons for refusal can include:

• Not having a credit record if you have lived abroad or are recently divorced.
• Running into financial problems as a student.
• Paying a bill late.
• Failing to appear on the electoral roll.
• Incomplete work or income history.

There are many degrees of poor credit and the adverse credit market reflects this. This kind of credit goes by different names depending on the lender (impaired, sub prime, non-conforming and adverse), and varies according to the severity of your previous credit problems.

Adverse credit lenders employ specialist underwriters to assess your case individually. These will take into account the reasons for your poor credit history. Let's say you fell behind with your payments because of a divorce but then got yourself back on track. Therefore you are more likely to receive a favourable hearing than if you have carried large debts on a constant basis. They are assessing whether you can afford the repayments in the future.

To help the lender to assess the severity of the credit problems and any potential risk involved, you will be asked to provide full details of your finances, as well as proof of income and some proof of recent loan or mortgage repayments.

You may have repaired your credit rating if you have stayed with your lender for a period of time (usually around three years), made your mortgage repayments over that time and have no outstanding defaults or CCJs. If this is the case, you should be able to remortgage to a standard mortgage through your existing lender or another provider - allowing for any tie-ins and early redemption charges. This should be as simple as remortgaging from any standard product. Some lenders offer credit repair mortgages that help you to improve your credit status and reward regular repayments. Over a period of years, your annual interest rate is reduced and ultimately reverts to the lender's SVR, providing you have maintained a spotless credit record throughout that period.

Costs and charges

Interest rates on adverse credit mortgages tend to be higher as the lender is taking on more risk. While rates for conventional mortgages are getting closer to standard variable rates because of competition, adverse rates aren't ever likely to be that competitive. Early repayment charges still exist, but are gradually coming into line with high street products. You'll also need to put down a bigger deposit than with a conventional mortgage - 30% and 35% deposits are quite common for heavy adverse credit mortgages.

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