by Mark Johnston
As the much publicised credit crunch continues to rumble on, lenders continue to be more and more cautious about whom they lend to.
The huge demand for mortgages now means that mainstream lenders can still be extremely selective and only accept loan requests from people with perfect credit scores.
In the current climate it is sadly a fact of life that over 40% of all UK residents have experienced credit problems.
Potential borrowers can be turned down for a wide range of relatively minor problems, such as not being on the electoral roll, even something as trivial as missing a payment on a mobile phone contract could have a detrimental affect on a mortgage application.
Mortgages for those with bad credit were widely available only a few years ago and some lenders saw this sector as a very lucrative area. However the picture has changed massively, the credit boom widely attributed to too many bad credit mortgages being granted and then borrowers defaulted on them.
Fortunately there are specialist lenders, who mainly operate through mortgage brokers, who understand that just because a borrower has run in to financial problems in the past it does not mean they will default on their repayments in the future.
If potential borrowers are finding it difficult to get a mortgage there are two things they should do:
Firstly they could talk to their own bank as they already know their financial history and therefore may be able to help.
Secondly they should talk to an independent mortgage broker as many lenders, especially in the bad credit market, prefer to deal with mortgage brokers who have a brand name and a history of introducing good clients to them. As a result of this there are many more products and criteria enhancements available through brokers that are not available on the open market.
Mortgages for those with poor credit ratings are generally known as sub-prime mortgages and these mortgages tend to come with higher interest rates and charges as they are deemed high risk products.
However, due to market forces of ‘supply and demand’ the gap between ‘prime and sub-prime’ interest rates have narrowed dramatically, meaning rates for borrowers with bad credit have become more competitive in recent years.
Mortgages for borrowers with bad credit are now distinctly graded, so that a borrower with only a small black mark on their credit record will pay a lower rate than say a discharged bankrupt.
The other good news is that it is now much easier to move up those grades. So borrowers do not have to stay on a high rate forever, as time passes and they demonstrate they are a responsible borrower, their credit record improves and they can move up the ladder towards mainstream interest rates.
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