Buyers with Bad Credit Struggling to Get a Mortgage

Buyers with Bad Credit Struggling to Get a Mortgage

by Rebecca Hall on 14 Feb, 2011

Getting a mortgage with bad credit is now harder than ever. Thanks to the credit crunch, bad credit mortgages (perhaps better known as ‘sub-prime’ mortgages) have got a bad name, the most simplistic explanation of the crash attributing it to the sub-prime market in the US.

As such, many lenders have stopped offering bad credit mortgages altogether, while those that do are imposing ever more stringent terms, requiring higher deposits and stipulating higher interest rates, despite the historically low base rate. Now is not a good time for getting a mortgage with bad credit.

To a certain extent this is a good thing as it prevents people borrowing beyond their means. On the other hand, there can be many reasons behind a bad credit record, and preventing people from getting onto the property ladder is no way to set people on the path to financial security.

Additionally, one of the ancillary problems of buyers struggling to get a mortgage with bad credit, is that paying back a mortgage is one of the best ways of establishing a better credit record, at which point, savvy borrowers switch to a standard rate mortgage to avoid the higher interest rates associated with the higher risk of lending to them.

What is likely to happen is that as the economy recovers and the property market stabilises, lenders will become more relaxed about lending. We’re unlikely to see the levels of easy credit we saw during the boom years before the recession, and this is no bad thing, but what we will see is a return to available credit for those with bad credit, albeit with higher interest rates and deposit requirements than previously, but lower than currently demanded.

As lenders feel more secure themselves, they will be more secure about lending. And as credit is the lubricant of the economy, as the government is repeatedly at pains to remind us, this is of paramount importance.

About the Author

Rebecca Hall

Rebecca Hall worked as an independent mortgage adviser for 10 years before turning to financial journalism full time. She has strong links to the CAB advising families on mortgage refinancing.