Subprime Mortgage Advisor

Sub Prime

Sub-prime mortgages – what they are, and how they help

If you have had a period where your finances have been a little out of control that has reflected its blemishes on your credit file, you may have what the mortgage industry terms sub-prime credit history.

This is not as bad as it sounds. A prime history will be spotless with all payments made in full and on time. It could take as little as one or two late payments for a mortgage lender to consider the account sub-prime.

Sub-prime is a broad definition and can also include credit files, mortgage arrears, bankruptcies, or IVA’s.

The good news is, there is a sub-prime mortgage market specifically aimed for those with patchy credit files.

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How to identify if you need a sub-prime mortgage

The definition ‘sub-prime’ refers to your credit history and therefore, you need to see your credit file in order to establish if you may fall into the sub-prime category.

Credit files are held by three main credit reference agencies in the UK, Equifax, Experian, and Call Credit. The information listed on these three files can differ, and so it is always worth getting a copy of each of the three files.

Copies of your credit file can be obtained online with a statutory credit report being offered by each of the credit reference agencies for just £2.

Viewing your credit file enables you to see if there are any late payments, defaults, County Court judgements, and particularly, any problems you were not aware of that may be down to credit provider error.

Red or orange dots on your credit file generally mean you could fit into a sub-prime category.

Degrees of sub-prime

A mortgage borrower could be in need of a sub-prime mortgage if they simply have a few late payments on their credit file. A mortgage borrower with substantial five figure County Court judgements on their credit file can also benefit from a sub-prime mortgage such as the range of product and lender available.

One of the key elements in the sub-prime market is the time that has elapsed since any credit problems. Sub-prime lenders offering the more competitive rates like a two or three-year recent clear record. These lenders can offer lending at competitive rates even when High Street lenders say no.

Those borrowers with more recent sub-prime history, perhaps within the last 24 months, may need a more specialist sub-prime lender, particularly if the problems include defaults or County Court judgements.

Obtaining a sub-prime mortgage

Borrowers should obtain sub-prime mortgage lending via an independent mortgage broker. The majority of some prime lenders do not offer a product direct to the public and only distribute their mortgages through mortgage brokers. Therefore, to access the full range of the market, you do need a broker.

In addition, the broker can analyse your credit file and assess accurately which band of sub-prime mortgage is most suitable for your circumstances.

When you apply for a sub prime mortgage, in addition to the usual supporting documentation that will be requested, you may also be asked for:

  • An explanation of the reasons for the adverse credit history
  • Certificates of satisfaction for the County Court judgements
  • Six months bank statements

Sub-prime lenders will not want to see evidence of recent mismanagement on the bank account. Particular problems include: payday loans, payments being returned, borrowers not keeping within agreed overdraft limits.

Moving on from a sub-prime mortgage

As you might expect, a sub-prime mortgage will be more aggressive than on a mainstream product.

Sub-prime products are typically priced over two or three-year periods and the products allow borrowers to move on after that time without penalty.

During the intervening period, the sub-prime borrower will have had a chance to get their credit file on track and suitable for mainstream lending. Therefore, the additional cost of the sub-prime mortgage is usually only a temporary arrangement.

If you need a sub-prime mortgage or re-mortgage, call us now on 020 8979 9684