Are You Paying Over The Odds For A Bad Credit History Mortgage?

There's no denying that a bad credit history mortgage is perceived as a risk for lenders. After all, if someone has already defaulted on rent payments, credit agreements or loans, there is no guarantee that the person won't default on the bad credit history mortgage. However, that doesn't stop lenders from offering this type of mortgage.

There are several lenders in the bad credit history mortgage sector providing dozens of different mortgage loans, so consumers have a lot to choose from. The bad credit history mortgage products are usually differentiated by the extent and type of bad credit that the applicant has. That means that someone who has had trouble with meeting payments in the past, but has had a relatively clear recent history may get a relatively favourable rate on the bad credit history mortgage. In fact, depending on the loan to value, that person might not need a poor credit mortgage loan at all.

In contrast, someone who has had great financial difficulty and has arrears, County Court Judgements and defaults may have to pay a bit more, and the interest rate is likely to be even higher if there is a bankruptcy or individual voluntary arrangement (IVA) in the picture. All of these factors pose a big risk for lenders and that's why they often load the interest rates on a bad credit history mortgage by as much as five per cent, depending on the circumstances.

Bad Credit Mortgage Rates

Add to that the current financial picture of rising Bank of England base interest rates and anyone with a bad credit history mortgage could be in for a rough ride. Ironically, this is not only because of the interest rate rises. While the Bank of England base rate has risen by 0.75 per cent in the last six months, research shows that the rise in the rate for the average bad credit history mortgage has been only 0.24 per cent*.

That doesn't sound like bad news. However, lenders charge in other ways that mean that an bad credit history mortgage is now more costly than it was six months ago. Research from a leading financial comparison site has detected that fees for this type of mortgage have been creeping up. The average fee payable on an bad credit history mortgage was £813 six months ago, but now it is £923. That's a 13.5 per cent increase within the six month period*.

The averages shown mask another issue, that of fees creeping above the £1,000 mark. Within the last six months, the research shows a 46 per cent increase in the number of bad credit history mortgage deals which charge over £1,000. That means it's hard for people to find a cheap deal. The number of deals without fees fell by 81 per cent in the last six months, with only 13 such deals now available**.

This makes it essential for borrowers to seek professional advice to get the best deal. Even if they are not cheap, there are plenty of deals to choose from and 20 per cent of mortgage brokers are intending to increase the number of bad credit history mortgage deals they offer in the next year.

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* As per April 2007. **Source: Trigold April 2007.

Adverse Mortgage Centre

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