Bad credit doesn’t mean no mortgage offers

Nobody that has kept at least half an eye on the news recently can be unaware that there has been something of a crisis in the credit sector. Northern Rock, a bank specialising in mortgage loans to sub-prime borrowers, was forced to approach the Bank of England for a loan after its cash flow became tied.

UK follows US trends

The whole thing stems from a recent crash in the US subprime mortgage sector. Subprime lending is a banking industry term for loans to people who, generally, cannot access mainstream lending. This may be because they have a bad credit history or cannot prove their income, or have proved unable to keep up with repayments in the past.

Whitney needs a financial Bodyguard

Some people just cannot keep control of their finances no matter how much money they have. Take soul diva Whitney Houston, one of the biggest names in the world of female solo artists. Her and hubby RnB crooner Bobby Brown are reportedly in financial dire straits.

Earlier this week, Whitney’s £750,000 Atlanta mansion was seized by courts and auctioned off after multiple defaults on mortgage repayments. The repossession follows earlier reports that her £2.5 million New Jersey home was repossessed due to defaulting on more than £500,000 worth of mortgage payments and taxes, according to Monsters and Critics.

Never say never

If you’re mortgage and credit history is as much of a nightmare as Ms Houston’s seems to be, you could be forgiven for thinking that the doors to mortgage borrowing are forever closed to you. Not so, according to one financial services advisor.

This week, Zen Financial Services advised people worried about their credit rating and ability to obtain a homeowner loan that they still have options, no matter how bad things seem. For one thing, "adverse credit mortgages are rarely refused," the company says.

Spokesman Mike Pendergast says that most lenders "will do adverse mortgages which are similar to a normal mortgage but they’ll charge a bit more in terms of interest or arrangement fee".

He added that, as the underwriting criteria is "a little less strict" than it would be with a standard mortgage, the borrower will find the mortgage offer will come with a more expensive rate of interest attached.

Always an offer – for the right price

"With adverse credit, most lenders will have a range of products depending on the severity of the adverse credit. They generally refer to them as prime – being no adverse credit – light, medium and heavy depending on the severity and the rate will go up accordingly," he explains.

"So a heavy adverse will be a higher interest rate than say a light, which could just be a couple of missed payments on a credit card or something."

According to Mr Prendergast’s experience, it is "rare that someone will be turned away completely but at the moment with the current happenings in America some lenders are tightening up on who they will lend to."

"There will always be a lender that will lend, if you’re happy to pay the price," he believes.

Subprime mortgages ‘can help with access issues’

Meanwhile, the Council of Mortgage Lenders, an industry body representing most of the mortgage lenders in the UK, says it has noticed an increase in the number of 100 per cent loan-value mortgages that are on offer to borrowers.

These products "ease the deposit constraint", while interest only loans "help ease the initial debt service burden for those who have to stretch to gain access to local markets," the organisation says.

A spokesman confirms: "Given the rise of self-employment and more chequered credit histories, we have seen a substantial expansion of the near prime and sub prime markets as lenders seek to assist the full spectrum of would-be buyers."

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