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Adverse Credit Mortgage Guide - Part 3
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If you are considering whether you would be eligible for a mortgage and whether adverse, bad or poor credit would have an effect on an application then this article should help - whilst these mortgage guides are not exhaustive, they should give you a better understanding of what's involved in applying for a bad credit mortgage or a mortgage with bad credit. In our previous articles - Bad Credit Mortgage Guide - Parts 1 & 2 - we looked at what an adverse credit mortgage is, what an adverse credit lender does and what circumstances may bring about adverse credit, in this article we are going to look at how any adverse credit you have may be viewed by a sub prime mortgage lender.
The obstacles people face when apply for a mortgage can be stressful at best, add bad credit or adverse credit into the mix and applying for a mortgage can seem daunting, we hope to clarify how some lenders may view your adverse credit when applying for a mortgage and how the main types of bad credit obstacles we come across could effect you application - namely defaults, CCJ's and mortgage arrears.
Applying for an adverse credit mortgage with Defaults
From an adverse credit lenders point of view, a default will generally be the easiest obstacle to overcome, so much so that many sub prime lenders will completely ignore all defaults for underwriting purposes. If defaults are taken into account it will tend to be the higher risk products such as those needed by first time buyers or people with very little deposit. If they are taken into account, depending on the lender, they will look at when the defaults were registered, when/if they have been repaid, the pound amount and the number of defaults registered. The products available are so varied that mortgage products can change with the same lender depending on the deals available.
Applying for an adverse credit mortgage with CCJ's
Applications for an adverse credit mortgage with CCJ's are generally examined more closely when an application is being underwritten. There is little chance of the lender ignoring them and they will usually have a larger impact on what's available to you then defaults will. What CCJ's a lender will allow, similar to defaults will vary from lender to lender and from different mortgage products from the same lender, like defaults it will depend on when they were registered, when or if they have been repaid, the amounts owed and the number of CCJ's registered.
There are typically 3 instances in which a lender will ignore CCJ's registered on your credit file for underwriting purposes, the first being if the CCJ is under a set pound amount (set by the lender, for example less than £250), the second would be dependent on when the CCJ's was satisfied, for example if the CCJ was repaid over 12 months ago it may be ignored (again the timeframe will vary from lender to lender), the third is when the CCJ was registered - it is possible that a lender may ignore a CCJ that is still current if it was registered a long time ago (for example, a CCJ may not be taken into account if registered over 3 years ago) again the timeframe is set by the lender.
Applying for an adverse credit re-mortgage with mortgage arrears
If you want to remortgage or want a new mortgage and have existing mortgage arrears its important to be honest with your broker, when applying for a mortgage with mortgage arrears the lender will not just look at payments still outstanding but any payments missed over a set period of time, for an adverse credit lender this would typically be the last 12 months - so whilst you may have only 1 outstanding missed mortgage payment at the moment, you may have missed more payments but caught back up with a number of them, the lender would take all missed payments into account not just the ones still outstanding at the time of application.
We have spoken to clients who have been under the impression that once the missed payments have been repaid they will no longer be relevant to the application, but as any lender will require at least 12 months mortgage payment history the payments which were missed will show up sometime during the underwriting process so its best to ensure you are clear about which payments have and have not been paid when due from the outset as this will save time and frustration during the underwriting and application process.
In certain instances the mortgage payment history will not show on the credit file - in this case the lender will require a 12 months mortgage statement prior to any offer being made. If payments have been missed and they are listed on the credit file, applying for a mortgage statement can sometimes still be in the clients best interest - this is because most adverse credit mortgage lenders will allow a lapse time (the difference in when a payment is due and when a payment is made). Your credit file could potentially show payments missed that were paid two weeks after the date they were due, on a mortgage statement a lender would see when the payment was due, when it was paid and may class the payment as late and not missed which would mean working with fewer missed mortgage payments for underwriting purposes which can only improve the clients position.
How does the lender work with a mix of bad credit items?
Lenders will generally allow more than one type of bad credit to be applied to a mortgage product.
For example
A mortgage product may allow unlimited defaults (i.e. ignoring them), 1 missed mortgage payment in the last 12 months and 2 CCJ's not totaling more than £5,000
Another mortgage product may allow 2 missed mortgage payments in the last 12 months and up to 4 CCJ's regardless of their value
The mixture of adverse credit allowed by the bad credit mortgage lenders products will differ from lender to lender and will also differ from mortgage products available from the same lender. As a general rule of thumb the worse the credit file and credit history the less the lender will allow on a loan to value basis which will have the knock on effect of the borrower needing either more equity for a remortgage or more deposit for a purchase.
