Bad Credit Mortgage UK | How Adverse Mortgages Evolved

In investigating the bad credit mortgage UK agency the Council of Mortgage Lenders (CML) has released some recent research about this sector of the UK mortgage market. The bad credit mortgage UK sector is a substantial one, and is the second largest specialist sector after buy to let. The bad credit mortgage UK sector accounts for about 6 per cent of gross mortgage advances, according to the CML's data. Yet this sector has only come into its own in the last 15 years or so*.

As with buy to let the bad credit mortgage UK sector emerged from the economic recession of the 1990s when people were finding it difficult to buy houses and to meet payments on credit. At that time bad credit mortgage UK lenders were few and far between, with only a few bad credit mortgage lenders offering loans to the non-conforming sector. These bad debt mortgage loans were not that popular because of concern that companies were using sky high interest rates to penalise people who were already in financial difficulty.

However, the situation has changed considerably since then with several bad credit mortgage UK lenders entering the market. The CML estimates that there are now more than 30 bad credit mortgage UK lenders*, whether these are specialist lenders, subsidiaries of high street banks or global investment firms. This has resulted in more competition in the sector which means better products for consumers.

At the same time, demand for bad credit mortgage UK products has increased. There are several reasons for this. Bad credit mortgage UK products are in demand because of changing family and work patterns. Separation and divorce have taken a toll on financial stability and a shift to contract and transient work means that many people lack the stable credit record that many lenders expect. Job losses and illness also make it more likely that people will need a bad credit mortgage UK loan.

Why Poor Credit Mortgages?

Short term financial difficulties are now common, with research from the Citizens Advice Bureau suggesting that three quarters of a million Brits had missed at least one mortgage payment in the last year. Research from Datamonitor also suggested that just under 20 per cent of the UK's adults were refused mainstream credit in 2005. This underlines the need for the bad credit mortgage UK agencies have found. Rising interest rates are likely to increase demand for loans from bad credit mortgage companies.

The value of the bad credit mortgage UK sector is subject to dispute, as many adverse credit mortgages are considered under other banners. Merrill Lynch estimated this type of lending (including sub prime and near prime) at upwards of £25 billion in 2005. The CML's more modest figures put the value of the adverse credit sector alone at around £15 billion. This makes it a sizeable sector*.

In the short term at least, the CML foresees increased demand for bad credit mortgage UK loans. This is because interest rates appear to be on a short term rising trend and there is significant worry over consumers' ability to cope with household finances. As UK consumer debt passes the one trillion pound mark, it seems likely that there will be need for bad credit mortgage UK products for some time to come*.

*Source: www.cml.org.uk - April 2007

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