Looking at the Moneyfacts data tables, which are used by many mortgage brokers to find the best deals, there are a reassuring number of lenders that will lend to people who have impaired credit records. It's reassuring because it means that there is at least some competition in this area, which helps to keep the cost of these mortgages down.
The market is a lot smaller than if you have a perfect credit history, but it still offers a credible amount of choice. According to the tables, there are:
- 25 companies that will consider you if you were discharged from bankruptcy less than six months ago.
- 26 lenders that will consider you if your IVA was satisfied over a year ago.
- 22 lenders that will consider you if your IVA is continuing!
- Dozens that will consider you if you've had a County Court Judgement (CCJ) (depending on the amount, and the number of arrears you've had).
For what Moneyfacts calls 'light sub-prime borrowers' (which means perhaps one or at most two late payments in the past year), there were at least ten mortgages charging fixed rates as low as 5.75% to 6.4% at the start of this month. (The rates may have gone up a bit in the last two weeks though. See It's Not Too Late To Fix That Mortgage!)
Even looking at 'extra heavy sub-prime borrowers', there are a number of fixed-rate mortgages that were charging 6.5% to 7% at the start of this month. Although these are far off the rates of around 5.25% that are currently available to those with clean records, these deals seem, to me at least, to be surprisingly good.
Still, that extra, say, 1.5% adds a huge £225 per month to the cost of a £180,000, 25-year interest-only mortgage. That's an extra £2,700 that the borrower needs to find, and we haven't even compared arrangement costs yet.
Looking at the arrangement costs now, it seems that all the sub-prime rates mentioned above typically cost £600 to £1,000, which is also surprisingly low. (Don't forget the other costs associated with getting a mortgage too, such as legal fees.) It indicates that the greater risk of lending to 'sub-prime' borrowers is usually built into the interest rate only -- not the fees.
Going through a broker is probably the best way to find sub-prime deals. If you're finding it hard to get a good deal (or any deal even) then you should redouble your efforts, as it's quite possible that they do exist somewhere. My final tip is to get quotes from a variety of sources.
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