• The State of UK Finances and Mortgage Options Available to Those With a Subprime Credit Background

    The UK money advice charity, Credit Action have published its latest study of 'debt statistics' and this offers disturbing reading for consumer financial well-being in the UK. At the end of June 2011, public borrowing totaled £1.451 billion of which £1.241 billion was held in mortgages and secured loans but this means that average unsecured borrowing amounts to £8,064 per household. However, the Office for Budget Responsibility forecasts that home indebtedness will be a whopping £2.126 billion by the close of 2015.
    To the year ended March 2011, the Citizens Advice Bureau in England and Wales dealt with 9,072 new financing related problems each working day, 1,577 new County Court Judgments were granted each day within the first quarter of 2011 and 331 will be declared bankrupt every day. Possibly even more worrying (which shows the borrowing spiral getting out of control) is analysis undertaken by the homelessness charity, Shelter in August 2010 which found that more than 2 million people had used a credit card to pay either the mortgage or rent.
    Fortunately in the past many individuals who had over-extended themselves with unsecured debt had benefited from increasing property prices and were able to use this as a get out of jail free card with debt consolidation being provided by banks and building societies falling over themselves to lend to these borrowers. Mortgage providers were offering significant income multiple stretches beyond the 'norm' and would even look at borrowers with an adverse credit record. There were even lenders of last resort that would lend to settle mortgage arrears and even to stop repossession. This no holds barred lending may have been a step too far but to stave off the debt crisis waiting to happen when base rate starts to rise again, the poor credit mortgage funders need to step up to the plate and offer the increasing numbers that are not able to get a mortgage on the high street a safe haven.
    It has never been harder for a first time buyer to get on the housing ladder and many do not realise that their monthly credit behavior on financial commitments, banks accounts and even mobile phones are being viewed by lenders and assessed via credit scoring to ascertain whether the 'would be borrower' achieves a high enough credit score to acquire a mortgage. In the main first time buyers do not hold huge deposits and unfortunately mortgages that require only a 10% deposit have the credit score bar set prohibitively high. Lenders have historic payment information on their arrears book and they use this info to set a score card to deter this type of mortgagor in the future. Commonly, they will not accept applicants that have missed or even late payments on unsecured borrowing. Some high street lenders are more lenient but they will usually approve in exchange for a higher deposit.
    If 2 or 3 loan or credit card payments have been missed on a credit contract, the lender will normally issue a 'Default' notice which means that the borrower has broken the contractual terms of the credit agreement and this has a hugely damaging effect on their credit rating and their ability to get a mortgage from a high street lender. A default will remain on their credit register for 6 years from initial registration or satisfaction and in the current environment this make it almost unachievable to get a mortgage except from a specialist adverse credit mortgage lender.
    If a borrower fails to pay a debt as it becomes due then an avenue open to the creditor is taking the debtor to court to procure a County Court Judgment for non-payment of the commitment. Once this is issued by the court it is recorded on the Register of Judgments and this is also held by credit reference agencies and it will remain on the individual's credit report for a period of 6 years. Any County Court Judgments whether they are settled or not will usually cause a high street lender to not accept a mortgage application.
    Even though would be borrowers are likely to be declined by high street banks and building societies if they have any late / missed payments, defaults or County Court Judgments, the specialist poor credit mortgage funders are beginning to lend again but with very particular lending criteria. In the current environment it appears that these funders are willing to disregard historic adverse information for first time buyers on the understanding that nothing has been recorded within the last 2 years. As this is an extremely expert area and criteria varies from lender to lender we would recommend speaking to a specialist bad credit mortgage advisor who will be able to provide an independent recommendation as to the most appropriate mortgage for your specific circumstances.


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