Finance: There's a loan for everybody
A poor credit history need not spoil your future. Stephen Pritchard sifts the options
Wednesday 06 December 2006
The UK is now the most indebted country in Western Europe. According to figures from Datamonitor, a market research firm, Britons borrowed £215bn last year.
The rise has been fuelled, in part, by competition between mortgage companies and other lenders. One of the fastest-growing areas of mortgage lending is the so-called "sub-prime" market - mortgages for people with poor credit history or other circumstances that, from a bank's point of view, are less than ideal.
Also, higher levels of borrowing have increased the number of people who fall into mortgage arrears or suffer other credit problems. In turn, this has increased the market for sub-prime mortgages.
Last week, the Financial Services Authority warned companies operating in the sub-prime market that it was monitoring the sector closely, following an investigation into poor-quality advertising and marketing put out by a number of mortgage brokers. The FSA found that brokers with poor-quality advertising also often gave misleading information about fees.
The authority found that some people were being sold more expensive mortgages when there was no evidence that they had impaired credit. Interest rates and fees on sub-prime mortgages are generally higher than the norm. Sub-prime brokers can also charge 2 and 3 per cent of the mortgage amount for their services.
Why should I look for a sub-prime mortgage?
One of the main reasons homebuyers look for a sub-prime mortgage is because they have been turned down by a bank or building society. According to research by the Joseph Rowntree Foundation, rejection also makes borrowers more likely to go to a mortgage broker as they are wary of being turned down again.
Some homebuyers will have a clear idea of their credit status. In other cases, rejection could be for a number of reasons, such as a poor credit score or insufficient proof of income.
If someone is turned down by a high-street lender, they should try to find out why. Homebuyers should not fall into the trap of assuming that if one bank or building society rejects them, they automatically fall into the sub-prime category. It could well be that applying to a different lender could bring success.
Alternatively, homebuyers could turn to a mortgage broker. Again, being turned down on the high street does not mean it is necessary to go to a specialist sub-prime mortgage broker. A good broker can look at both mainstream and specialist lenders. If a buyer has minor credit problems, it should be possible to find a mortgage at a standard rate.
"The first question in any situation is whether the client can be placed with a mainstream rate. This will depend on the extent of the credit problems they have encountered in the past," says David Hollingworth, director at mortgage broker London & Country. "If the credit problem was settled some time ago and the borrower has a good track record since, a mainstream lender may be able to help."
What should I do if I am considered sub-prime?
Sit down with an adviser rather than try to find a mortgage over the internet - and risk a string of rejections. Clare Mortimer, of specialist lender and HBOS subsidiary BM Solutions, says that a branch adviser at Halifax could look at a homebuyer's case and, if it fails the criteria, recommend another lender within the group. "HBOS has several brands and so can offer mortgages to a wide range of borrowers," she says. " If a client is unable to secure a mainstream mortgage with the Halifax, they can access products from the BM Solutions brand which offers deals from 'near prime' status."
Anyone with credit problems need not assume that they will always have to borrow in the sub-prime market. Several lenders, including BM Solutions, Accord and Scarborough Building Society offer "credit repair" arrangements.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Q&A: What’s the best way to invest for our baby?
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
After the election: What will Britain's financial future look like on 8 May?
Simon Read: 'Seven Families campaign offers an escape from financial and emotional distress'
General Election 2015: How you vote next week could affect your finances
- 5 How the language you speak changes your view of the world
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: SNP and its activists 'openly racist' towards the English, Farage says
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...
£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...
£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...
Day In a Page
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park