Housing victims back in business

It is possible to get a new home loan if you defaulted on the last in the recession. But it costs, warns Felicity Cannell

As The housing market continues to improve, mortgage lenders are opening their doors again to people whose homes were repossessed in the 1990s.

There are now hundreds of thousands of borrowers who have felt the scourge of repossession in recent years and, despite reports of a booming housing market, figures for repossessions remain surprisingly high at 650 a week - equivalent to more than 30,000 households a year.

The companies that specialise in lending to people with poor credit histories are under increasing scrutiny from the Office of Fair Trading (OFT) to ensure they do not overly penalise clients with excessive interest rates and outrageous charges for early repayment of loans. One lender, City Mortgage Corporation (CMC), has been the focus of intense media coverage because of its so-called dual interest rate mortgages, if one payment is missed the interest rate goes through the roof.

Another lender, Paragon Mortgages, (0800 44 00 99), has recently launched Freshstart Mortgage aimed at "victims of the recession". As long as applicants can prove they had a good credit rating before things went wrong, subsequent repossession or court judgements are not an issue, it says. "We want evidence of a good credit history at some point in the past, an understanding of how it all went wrong and a case to support the view that applicants are resolving their financial and personal difficulties," says John Heron, a director. But Paragon will only lend up to 80 per cent of the property price and the Freshstart rate is expensive, 3 per cent over standard variable rates. After three years, however, this 3 per cent premium will often be removed.

John Charcol, a firm of mortgage brokers, usually steers clients towards the Kensington Mortgage Company, which charges a slightly lower rate than Paragon but which stays in place for the life of the mortgage. Kensington expects borrowers to switch to a mainstream lender after a few years when their credit record has improved. Both Paragon and Kensington charge three months' interest if a client goes elsewhere.

Those "victims of the recession" who do approach mainstream lenders are not necessarily wasting their time. A customer deemed low risk by Paragon or Kensington may be just as acceptable to the Bradford & Bingley building society, for example. "We look at each individual case, and if a customer was simply caught up in the events of the early Nineties through no fault of their own, and is now back on his or her financial feet, we would certainly consider lending to them," says James Evans, a spokesman. Nationwide takes the same view. "If, for example, a client has been renting since he lost his property and rent payments are up to date, we would look sympathetically on such a case," it says.

Different lenders will have different policies, however, and if you have a bad credit history, paying for a mortgage broker to trawl the market could be worthwhile.

The Council of Mortgage Lenders (CML) warns that it is unlikely that levels of arrears and repossessions will fall back to the low levels prior to the recession. Michael Coogan of the CML says: "Rising interest rates mean that people coming out of fixed or discounted mortgage deals may face a reasonably large increase in monthly payments. At the same time, the low take-up of private mortgage protection insurance among new borrowers does not augur well if they lose their jobs in the future and need help to meet their mortgage payments. The full consequences will not be felt until a downturn in the wider economy occurs."

Borrowers should note, however, that the mortgage protection insurance offered by lenders is generally expensive.

Home owners on income support (about 400,000) may also face financial difficulties because of the way the Government calculates mortgage help. Where borrowers do qualify for help, and many people will not qualify at all, it is only for the interest element of payments. And interest is calculated by taking the average rate from a number of building societies, which is lower than the market as a whole, the Halifax et al having now become banks.

The net effect is that the rate paid out by the Department of Social Security will in many cases be lower than the rate a borrower is paying.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
This year's models: buyers have plenty of options as they try to get the money together to drive away from the dealer in a new car

Car finance options: Best way to buy a 65 plate

Sales could find another gear as the '65' registration hits the forecourts next week. Rob Griffin looks at the finance options
In too deep? Travel cover is among the benefits offered by packaged bank accounts

Claims firms blamed as complaints soar over packaged bank accounts

Many customers complained they were switched to the accounts without their knowledge

Finger on the interest rate trigger: the Bank of England

The best deals on personal loans: Peer-to-peer providers are more competitive for smaller sums

Meanwhile, high-street lenders continue to cherry-pick and be more competitive on larger loans

China stock collapse: Five things you need to know about 'Black Monday'

The market plummeted this week, losing all the gains made for the year

Which? warns sports fans about Rugby World Cup ticket scams

GetSporting.com offers deals that may be too good to be true

Could it be the time to focus on Japan? Some believe the country has no choice but to boost consumption and the economy will get back on track

Investors told to travel the world in the search for higher returns

Assets have risen in value across the board and volatility isn't going away. Rob Griffin asks where we should put our cash
As rising house prices push up demand for renting, so tenants are having to dig deeper than ever

Starter home initiative is urgently needed as rents go through the roof

Rents in England and Wales rose by 1.9 per cent in July to an average of £804

Peer-to-peer lending rates put Nisas to shame

The returns from P2P providers look more attractive than ever

Questions of Cash: Log-in problems turned eDreams booking into one-way ticket to nowhere

The company failed to provide our reader's flight ticket - or a refund

Hot property: business has been booming in estate agents this month, even though it’s the height of the summer holiday season

Heat rises for mortgage deals as UK homeowners sense a rate hike coming

The housing market should go quiet in August but instead people have been acting like cheap loans won't last. Do we really have to rush, asks Simon Read
Phones have now overtaken personal computers as the most used way of accessing the internet

Who you gonna call? The Complaints Busters

Unhappy customers have been given their own Ombudsman to help fight for them.

Undergraduates are being tempted with freebies by banks

Students should give freebies a wide berth and focus instead on cheap borrowing

An interest-free loan far outweighs the value of any of the bank's incentives

The Spanish carrier changed a reader's flight from Madrid – to a time before she was due to land

Questions of Cash: 'A connecting Vueling flight was cancelled and all my travel costs were left hanging in the air'

Our reader encountered problems when flying from London to Ibiza in May to take part in a charity ride

Complacency about rising rates could prove to be costly

Interest rates stay at 0.5% for now - but don't wait to get a better deal on your savings and mortgage

The years of ultra-low rates are coming to an end

The elderly are being targeted by fraudsters with postal scams such as fake prize draws

Fraudsters are bombarding older people with dangerous pension scams: here we reveal the warning signs

Many people are being repeatedly targeted by crooked schemes

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

    Reach Volunteering: Trustees with Finance, Fundraising and IT skills

    Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent