Bad Credit

Considerations When Taking An Adverse Credit Mortgage

The adverse credit mortgage sector has traditionally earned a bad reputation for having unscrupulous individuals making extortionate amounts of money from those who are in a less fortunate financial position. Since the mortgage market became regulated by the Financial Services Authority in 2004, this element of the business has largely disappeared.

Despite this, there are still some tricks of which any potential borrower should be aware in order to make sure that they do not pay more than is necessary for their mortgage. Adverse credit mortgages will almost invariably cost more than a traditional mortgage; this is because they are designed to reward the lender for the increased risk that they are taking by lending to someone with a previous financial issue. This is not to say, however, that there should be any excessive mortgage related fees involved and the small print should always be both fair and transparent.

When obtaining advice from a mortgage adviser, it is important to ascertain how they are being paid, so that you do not get stung for unexpected fees. In most cases, the adviser is paid by the lender, but this should be checked at the outset to ensure that you do not get a nasty shock, later on.

Consider how long it is going to take to repair your credit rating, and make sure that you do not take out a mortgage that ties you in beyond this period. Once your credit rating is repaired and you are eligible for a traditional loan, this will almost certainly mean a better deal and you will want the flexibility to be able to reselect a provider once you have this option available to you.

Pay particular attention to the fees and charges on your adverse credit mortgage as they are generally more punitive than those with traditional high street mortgages. For example, it is not uncommon for the application fee to be four times that of the average standard mortgage, so make sure you factor this into your calculations. Whilst a higher fee may allow you to have a lower interest rate, if the mortgage is for a relatively small amount, this may not be cost-effective. So, always look at the overall cost of the mortgage over a period of say two to five years, when comparing providers.

Adverse Credit Need Summary
Although most lenders have abandoned the adverse credit mortgage market since the credit crunch, this type of financial product is still available from a small number of mortgage lenders. Government initiatives to maintain liquidity in the financial markets are likely to encourage an increasing number of lenders gradually to return to the adverse credit mortgage sector, but this will probably be a slow process.