Bad Credit Mortgage: What to Beware Of

People often ask if you can get a mortgage if you have bad credit. The answer is, yes.

A decade ago it was much harder. If you admitted to having a credit record that was less than perfect – or if checks revealed any blemishes – prospective lenders would hold up their hands in horror. Then they would use this as an excuse for slapping on sky-high interest rates, high deposits and all sorts of restrictions on your mortgage – if they would let you have one at all.

Now there are a lot more mortgages available for people with past credit problems. And the greater competition means that the interest rates on a bad credit mortgage, though higher than on a standard mortgage, are not as high as before.

So if you come into this category, does this mean everything is fine now?

Well, it rather depends on the reasons why you have bad marks on your credit file. If you have just had a few hiccups in recent years for understandable reasons – marital breakdown, for instance, or frequent house moves – it shouldn’t be too difficult to get a bad credit mortgage with a mainstream lender.

If your problems are more serious – for example if you have one or two CCJs (county court judgments) or a persistent record of defaulting on payments – it will be more difficult to get a bad credit mortgage, but still possible. But in this case there are things you need to be careful of.

• The bad credit mortgage market is becoming an attractive one as debt figures rise. The lenders will try to convince you they are doing you a favour and will try to charge you more than necessary. But remember they are in it for their own benefit, not yours. Do shop around.

• Be careful about the advice you are given. If you seek advice from one of the specialist lenders of bad credit mortgages, they may come across as very caring, but their main object is to sell you a mortgage. They won’t be too concerned as to whether you can afford it or not – or even whether you actually NEED it. Make sure you get qualified and unbiased advice.

• If you have a lot of debts it will be tempting to roll them all into the bad credit mortgage. But remember the debts will still be there. Do you really want them ALL secured against your house – especially if you haven’t been all that good at managing your payments?

• Beware of companies advertising “bad credit mortgages” on TV or in direct mailings. Some of them charge up to a 3% fee to arrange one of these mortgages. On a six-figure mortgage this comes to a LOT of money.

• Take steps to check out which lenders are likely to accept you BEFORE applying. Every time you apply and get rejected, this will show up on your credit rating and make it even worse!

It’s really important to take advice from an independent mortgage broker – and make sure it’s one who has access to bad credit mortgages. This way you can be sure of finding a solution that’s in your interests, not that of the lenders.

Sean Horton is a Director of Enhanced Wealth Limited who are a specialist mortgage broker offering expert advice on bad credit mortgages