Why Bad Credit Doesn?t Mean No Mortgage3 min read

With more than half of the UK population having more than what?s classed as ?manageable debt?, it?s perhaps not surprising that bad credit mortgages are becoming more widespread. Getting onto the property market can be hard enough, but with a low credit rating it can be almost impossible, so the lenders and companies that offer bad credit mortgages are helping millions of new homebuyers everywhere.

However, as much as they help people out, these types of mortgages can also cause as many problems as solve them, so you need to be sure you understand what?s involved in a bad credit mortgage.

Interest Rates

One of the biggest differences when it comes to getting a mortgage for someone with bad credit is the interest rate involved. Whereas the average rate of interest on a mortgage in the UK might be around 5.5% to 6%, it?s much higher for a bad credit mortgage. In fact, it?s not unusual for the interest on this type of mortgage to be as much as 7.5%. While that may not look too high, it soon adds up when adding the extra interest onto your monthly payments.

Additionally, should you fall behind on your mortgage, you can find that the APR is a lot higher than a more traditional mortgage, sometimes prohibitively so. There have been numerous news stories about people losing their homes due to the interest accrued with late payments, with some lenders charging as much as 500% interest on overdue payments. Admittedly, this type of scenario is less likely now thanks to more stringent financial service laws, but there are still some dubious loan companies around, so you need to be careful of what you?re signing up for.

Who is Eligible

One of the best things about mortgage lenders for people with poor credit is that almost everyone is eligible. You would have to have a very poor credit rating to be declined, and even then there are still some lenders who would be able to provide you with a mortgage. As a guideline, however, a lender that deals in bad mortgages will approve you, even if you have, or have had, the following:

– County Court Judgements, or CCJ?s
– Self-employed (although not officially bad credit, this can still fall into this category)
– Rent arrears
– Credit card and store card debts
– Defaults on bank loans, car loans or similar
– Discharged bankruptcy
– Individual Voluntary Arrangements, or IVA?s

Additionally, you may still be eligible for approval even if you?ve previously had a home re-possessed due to falling behind too far on your mortgage payments.

There?s a lot to be said for bad credit mortgages ? they offer a lifeline for people who would otherwise be refused finance, and offer the chance to get onto the property ladder market. However, due to increased interest rates and potentially higher APR, they should possibly only be taken as a last resort, and only if you?re confident you can meet the monthly payments.

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