Old financial sins may not cost you a mortgage
'Near-prime' borrowers are being turned down for the tiniest of reasons by cherry-picking lenders – but there are other options, writes Sarah Davidson
Sunday 05 June 2011
Keeping track of your finances is a balancing act at the best of times, but, when unexpected events such as death, divorce or redundancy strike, things can get out of hand faster than you'd think.
A late credit-card payment, a temporarily missed gas bill or a phone bill settled a week later than usual might seem like trifles, but in a post- credit-crunch world, they could be the death knell if you're trying to get a mortgage. Britain's biggest high-street banks are short of cash to lend and they're cherry-picking the very best customers for a loan. But where does that leave the rest of us?
"The high-street lenders are declining cases for the smallest of issues," says Dale Jannels, a mortgage adviser at the broker firm All Types of Mortgages. "You only have to sneeze with some of the mobile companies or utility providers and they've hit you with a small credit default."
Just one late payment on a credit card bill is enough to tip borrowers out of the so-called prime category, and the biggest high-street banks will often turn you down as a result.
Melanie Bien, director of mortgage broker Private Finance, says: "With so many of the major high-street banks operating a tick-box policy, with no human element to their underwriting, many people are being turned down even though their indiscretions are relatively minor and often have been satisfactorily resolved."
This couldn't come at a worse time for borrowers, who are seeing incomes squeezed as the cost of living rises. The recession has caused tens of thousands of people to lose their jobs and many of them take a hit on their finances while they find employment.
But there may be hope emerging for borrowers increasingly being called "near prime".
"These clients are a world away from the heavy, adverse crew who should never have been allowed to borrow in the first instance, and are normal, decent applicants who happen to be victims of circumstance," explains Andrew Montlake, of mortgage broker Coreco.
And Ms Bien agrees: "There is lots of demand, which ultimately will bring the lenders in as they will see an opportunity. But this is still responsible lending – nothing like the lending of the past to those who have been bankrupted or had a property repossessed."
Several smaller mortgage lenders and building societies are beginning to look at borrowers who might have suffered a credit "blip" that they've managed to resolve. Blips range from a £50 County Court Judgment against an unpaid mobile phone bill that's now been settled, or getting one month behind on your mortgage payments.
Ms Bien says this type of deal can also be helpful for people who have recently changed jobs, and who therefore don't have much of a track record in their new role; those who have moved house and aren't yet on the electoral roll; or the self-employed, who are often at a disadvantage compared with PAYE borrowers.
It may cost more than a high-street mortgage, but remortgaging with one of these lenders could be an option for people stuck on their lender's standard variable rate (SVR) or who need to relocate for work or buy a bigger house for an expanding family.
"Some smaller lenders provide solutions for a significant number of borrowers that will have encountered minor issues, often through no fault of their own, who are seeking a more flexible underwriting approach," explains David Hollingworth of mortgage brokers London & Country.
Lenders that deal with brokers, such as Aldermore, Kensington and GE Money Home Lending, are prepared to lend to borrowers who fall just outside the criteria of the main lenders, particularly if borrowers have a reasonable amount of equity in their property. The smaller building societies are also more willing to price deals for risk.
Ivan Gould, the chief executive of Buckinghamshire Building Society, says: "There are a number of borrowers either wishing to move home or currently sitting on lenders' SVR who can evidence a spotless recent credit record and ability to pay, but who have had an issue in the past.
"If a case is acceptable, and we individually underwrite every application without using a computer scoring system, we will price it according to risk – sometimes this means that we offer one of our mainstream products and others at a premium to SVR."
Ms Bien explains the price differential. "Because these lenders are providing a solution to borrowers who are having difficulty getting funding, products are not priced to compete with the best-buy rates on the market," she says.
"But rates aren't bad, and certainly not as high as you might expect, with five-year fixes available for less than 5 per cent to those with a 35 per cent deposit, with a £999 fee."
Aldermore for example, offers a rate of 4.98 per cent fixed for five years, available via brokers only. Ray Boulger, a director of mortgage broker John Charcol, says using an adviser can also help you find a more affordable rate, depending on the problem you've had. "We are able to place many cases like this on normal or near-normal terms with smaller lenders that price for risk rather than having deals labelled near prime," he says.
"Being able to secure a mortgage often depends on the broker having a detailed knowledge of what types of minor adverse credit different lenders will consider, notwithstanding what their published criteria states."
Robert Sinclair, the director of the Association of Mortgage Intermediaries – the mortgage broker trade body – says borrowers should be taking financial advice if thinking about this type of deal, particularly as it's a more expensive option.
"Sitting down with a broker who will give advice, identify the borrower's needs and locate the most appropriate lender and product is the best way to a satisfactory outcome," he says.
But paying higher rates doesn't have to be a long-term thing. For people who have managed to resolve minor difficulties, Mr Jannels says near prime for the short term can be an affordable way to get yourself back on track.
"Many near-prime options are now available over one year, so the client can effectively credit repair their score and reapply to a high-street lender in a year or two years' time," he says. "Some also offer no early repayment charges, so this can be achieved sooner, depending on when the problems were first incurred."
Fees tend to be between £999 and £1,995 and rates start from just over 4 per cent. Borrowers should expect to pay 2 or 3 per cent more than on a standard deal, depending on the level of credit issues.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
- 5 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
Day In a Page
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 deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
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
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village