> Adverse Credit Mortgage - UK Guide
In a nutshell
An adverse credit mortgage is offered to consumers with a poor credit history/rating who will not qualify for standard mortgage products.
Best Mortgage For
People with credit history/rating problems. This kind of mortgage is generally offered to consumers whose credit rating has been affected by previous or existing financial problems. These problems can include CCJs, bankruptcy, defaults, arrears etc. It may also suit people that fall into the adverse credit category - such as the self-employed and people with no credit rating at all - even though they have not had any specific credit problems. People in this kind of situation will not pass a standard credit rating check with many lenders - an adverse credit mortgage is one alternative for them.
If you have a specific mortgage in mind - i.e. a repayment or interest-only mortgage - then you'll be able to find a provider that will arrange this within the adverse credit sector. You should also be able to find a full range of deals such as fixed, variable and capped rates, although you may have to shop around a little to get exactly what you want as some lenders may limit your choices.
Typical Amount to borrow
This will ultimately depend on the mortgage lender you choose - some will follow industry averages of around 3+ times your annual salary (if you are the sole mortgage holder) or 2.5+ times combined salaries (if you are a couple). Others may offer you less or more depending on their own terms.
As people with adverse credit are perceived to be a higher risk by many lenders they will often ask for a higher deposit (up to 20% of the money borrowed) to compensate for this fact. Some, however, will offer standard deposit rates of 5-10% and some will allow 100% mortgages.
It used to be extremely difficult to take out a mortgage if you had a poor credit history - adverse credit mortgages level the playing field and allow everybody to borrow the money to buy property. They are specifically designed for people who have had financial problems and also offer an ideal solution to others such as the self-employed that fall into the adverse credit lender category through no fault of their own. Also, adverse credit lenders will take your personal circumstances into account - standard lenders will not necessarily do this. This can be helpful if your poor credit history is based on a specific reason such as redundancy or illness, for example. Standard mortgage lenders don't tend to look at the big picture like this.
What to look out for
You may need to provide a higher deposit (up to 20%) to secure an adverse credit mortgage and you may find that your lender ties you into deals (such as fixed rate periods and discounts) for longer than is usual in the industry.
Different lenders view adverse credit in different ways so you may find that you can get a better deal by doing some comparative research before you buy. The majority of adverse credit mortgage lenders will charge you higher rates on your mortgage than borrowers with good credit will have to pay. These rates can vary according to the kind of credit rating you actually have so, again, it's worth shopping around to find the best one for you.
If you find yourself in the adverse credit category for a 'non-credit' reason such as being self-employed etc., then you can look at a self-certification mortgage as an alternative. If you believe that your credit rating problems are not too severe then it might be worthwhile taking advice to see whether you could buy a standard mortgage deal as an alternative - some mainstream lenders are becoming more flexible about working with adverse credit applications.