Adverse Credit Mortgages
There are a lot of people who have had financial problems in the past and who noww believe that their record debars them from getting a mortgage. This is simply not true; the decision on whether or not to grant a mortgage is not made by the credit reference agency but by the prospective lender, who will, however, take into consideration the information that the credit reference agency provides. Many lenders use scoring systems to decide who they wish to lend to, but often the final decision is made by a senior and experienced manager who uses his or her own judgement on whether or not an applicant will be a good or bad risk.
A poor credit rating is a very bad start to make when applying for a mortgage loan, but there are ways and means of mitigating the effect of it, and there are ways and means of improving a credit rating considerably. Firstly, it would be very advisable to someone with county court judgements (CCJs) to ensure that these are paid off before making a loan application. It would also help to have something like a mobile telephone which was paid for monthly by direct debit or standing order; this would show that the borrower was capable of making regular payments.
When a lender assesses risk on a potential mortgage loan one of the most important factors is the loan to value ratio. In other words, the higher the proportion of the house value that the prospective lender can put down as deposit the better the chance that the mortgage will be granted. This means that in most cases it will be necessary to settle for a fairly cheap house. It must also be borne in mind that a bad credit mortgage comes at a price; the interest rate charged on it will almost certainly be higher than that charged to someone with a good credit record, and the higher the loan to value the higher the interest rate is likely to be.
There is light at the end of the tunnel however. If a prospective borrower saves up a reasonably large deposit (20% of the purchase price is a figure to aim for) and can show an ability to be able to afford the repayments fairly comfortably then a number of lenders would look favourably upon an application. And, here is the best part; if the borrower then makes satisfactory repayments for round about three years or so that person's credit rating would rise quite substantially which means that it could well be possible to trade up to a larger house with a deposit of a smaller percentage of the purchase price, and a lower interest rate as well, in the future.
It is vital however that these repayments are kept up to date without fail; so it is important to make certain that any financial commitments that are taken on are affordable.
Many, if not all of the High Street banks will fight very shy of giving mortgages to people with a poor record in the past but there are a number of mortgage brokers who specialise in arranging this type of loan for their clients, and they are able to do so because they almost inevitably have contacts with lenders who are happy to take on this type of business so a bad credit mortgage broker should be the first port of call for most applicants.