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Adverse Credit Mortgage Guide - part 1
With everything that’s been in the news recently and over the past year or so it’s no wonder that borrowers are a little confused or concerned about the state of the mortgage market and applying for a bad credit mortgage. The biggest changes as far as mortgages are concerned is with the adverse credit mortgage market which is why we have put together a few guides 
explaining what an adverse credit mortgage is, what an adverse credit lender does, how your bad credit could effect your mortgage application and how the credit crunch has affected the market.
What is an Adverse or Bad credit mortgage?
In this first article we want to make sure you understand what an adverse credit mortgage and adverse credit lender is and the terms used to describe them.
Borrowers with a poor credit history or existing bad credit apply for what is called an Adverse Credit Mortgage, depending on who you speak to this type of mortgage may be referred to in a number of different ways, namely, a Bad Credit Mortgage, Poor Credit Mortgage, None Conforming Mortgage, a Sub Prime Mortgage or an impaired credit mortgage. Whichever term you hear people use, they will all be referring to the same sort of mortgage products.
A bad credit or adverse credit mortgage is simply a mortgage that allows potential borrowers who have had credit problems (past or present) apply for and obtain a mortgage or remortgage. The different types of products available vary depending on the type and severity of the adverse or bad credit.
For example:
It may allow a potential borrower to apply for a mortgage with defaults, CCJ’s, missed payments, low credit score, IVA, mortgage arrears or ex-bankrupt. They will typically allow a certain combination and number of adverse credit types (such as defaults and CCJ’s) which will effect both the interest rate available and the actual amount the lender will be willing to lend on a loan to value basis. As a general rule of thumb - the more sever the bad credit the higher the interest rate and the lower the loan to value.
How do I know if I can get an adverse credit mortgage?
Typically mortgage products that allow poor credit will view the severity in this order (from least sever to worst): low credit score, defaults, CCJ’s, missed mortgage payments, IVA, ex-bankrupt. However it should be said that most if not all mortgage products will depend on a mixture of the amount of the bad credit, the number of credit items and when the poor credit was registered. For example in the list above we put mortgage arrears above CCJ’s, but it could be that a £5,000 CCJ’s registered 1 month ago may cause problems with a certain mortgage product but a missed mortgage payment 12 months ago may not.
This is one of the reasons we recommend you speak to a specialist when needing help with mortgage applications.
The process of applying for an adverse credit mortgage, from the borrowers point of view will not differ that much from a normal or standard mortgage, of course they will see higher interest rates and fees (which would stand to reason as the lender is taking more of a risk) and they may be asked for slightly more information than normal but other than that there is little difference as far as the borrower is concerned in actually applying.
What are adverse credit mortgage lenders and what do they do?
Adverse credit mortgage lenders are the institutions behind the mortgage products described above, again they are known by various other names such as, bad credit mortgage lender, poor credit mortgage lender, sub prime mortgage lender, none conforming mortgage lender or impaired credit mortgage lender. Again all these descriptions refer to the same type of lender.
There are lots of lenders who fall into the categories above and each have their own mortgage products available to potential borrowers. Each lender will have their good points which could benefit the client, for instance some will take personal circumstances into account and view the bad credit more objectively than others, some will allow a client to borrow more than others and some will be more lenient with certain types of bad credit then others, knowing the difference between the different lenders and their little niche products etc could mean a huge saving for the borrower. The lender also sets the interest rates, the lender arrangement fees and valuation fees etc. Just to be clear, where the terms none conforming and sub prime lenders are used, a prime or conforming lender would be your local high street bank or building society.
Sub prime lenders will tend only to deal through mortgage brokers and it is unlikely they will deal with the borrower directly until the mortgage has completed. This in part is due to the complexity of ensuring a client with adverse credit gets the best deal possible and also to help the lender reduce costs by not incurring staffing costs that would be required of they sold directly to the public.
In the next guide we will be looking at what can cause people to have bad credit and how the impaired credit may effect an application.
