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.
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