Finance: There's a loan for everybody

A poor credit history need not spoil your future. Stephen Pritchard sifts the options

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.

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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