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Adverse Credit Mortgage Guide Part 4
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If you are interested in getting a mortgage but have adverse credit listed on your credit file things can be very confusing - we have put together a number of guides which should help you understand what a bad credit mortgage is, what bad credit mortgage lenders do and how bad credit 
effects the mortgage products available to borrowers. In this article we will be looking at an overview of how the credit crunch has effected the UK adverse credit mortgage market. We will be keeping the terminology jargon free and easy to read.
How has the credit crunch affected the UK adverse credit mortgage market
The best way to look at this is to give a few examples of what may have been on offer 12 months ago and what's you my be offered today.
Example of a bad credit mortgage 12 months ago
Lets say 12 months ago you could have applied for a mortgage for 90% of the purchase price, the mortgage product could have allowed 3 missed mortgage payments, £8,000 of CCJ's and would have ignored all defaults. Similar types of product were widely available 12 months ago.
In today's terms the comparable 90% mortgage product may only allow 1 missed mortgage payment, £6,000 total CCJ's and will still ignore defaults.
What this means is, whilst their are still very good uk adverse credit mortgage products available the lenders are tailoring them with stricter criteria in order to minimise risk, it is logical to assume that the less adverse credit someone has the better able they are to service their debts.
Why is the UK adverse credit mortgage market more strict
The UK adverse credit mortgage market is more strict mainly due to the fact that lenders are finding it more difficult to raise mortgage funds and the funds that are available are costing more for the lender to purchase. This is mainly due to the downturn in the global economy which has been termed as the 'credit crunch'. To explain further, the majority of lenders raise funds from the wholesale money markets, they buy or borrow the mortgage funds at the LIBOR rate (London Inter Bank Offered Rate - is the rate of interest that lending institutions lend money to each other).
LIBOR is effected by the global markets and the cost of obtaining credit globally has substantially increased - this means the lenders are having to pay more today than for a comparable product 12 months ago, the cost of which has to be passed onto the consumer, obviously if the wholesale costs of products mean that the end user cost (the cost to the borrower) could be to high, effectively pricing itself out of the market - then the lender obviously would not try to raise the funds, this is one reason why there have been a number of mortgage products withdrawn and why there are generally far fewer products available today than 12 months ago.
Have all UK adverse credit mortgage lenders been effected
To some extent all UK bad credit mortgage lenders have been effected by the credit crunch, perhaps the least affected are lenders known as 'balance sheet lenders', balance sheet lenders generally lend their own money which means they use their own balance sheet to determine availability of mortgage funds for UK consumers. That's not to say balance sheet lenders have not been affected at all, they have but just too a lesser extent - in recent months the lenders with the better products have tended to be those termed as balance sheet lenders (we will leave it their for balance sheet lenders, its supposed to be none technical and jargon free remember!)
In conclusion, if you have read all the articles relating to bad credit then you should be a lot more knowledgeable than you were before and hopefully have a clearer idea of whether you want to apply for a bad credit mortgage
- we would always suggest speaking to a professional for further guidance.
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