Credit Repair Schemes
If you have a bad credit history, finding an affordable mortgage can be difficult. Credit repair schemes are providing an exit from the non-conforming mortgage market, allowing bad credit mortgage candidates access to prime mortgage products.
Credit repair companies
Many companies in the UK offer credit repair schemes, promising to clean up your credit report for a fee. The fact is that these companies cannot change anything on your credit report that you cannot change yourself – for free. The only things able to be removed from your credit record are errors, which you can apply to have righted. See our article Your Credit Score and You for more information on how to review your credit record.
Sub-prime lenders
Generally, having a history of substantial credit problems, such as CCJs, bankruptcy, and foreclosure will categorise you as a sub-prime candidate for a mortgage, making it difficult and often unaffordable to obtain a mortgage. Many high-street lenders will not provide mortgages for sub-prime candidates at all, or only offer mortgages on a case-by-case basis. Applicants are subjected to an assessment of their credit problems, and suitability is determined on factors relating to how long ago the credit problem was, what caused it, and whether your history has improved in the time since.
Traditionally, this has forced borrowers into the realm of sub-prime mortgage specialists, who deal exclusively with non-conforming mortgage candidates, offering mortgages at such high rates that they are not an affordable borrowing option. The determined borrower aims to maintain their payments over a set period in order to improve their credit rating, then remortgage as a prime candidate with a new lender. However, often those forced into this borrowing option are unable to cope with high, varying interest rates and the mortgages themselves often come with lengthy lock-in periods and high early repayment fees, making the road to credit improvement long and often unattainable.
Credit Repair Mortgages
Growing in popularity are credit repair mortgages, which are providing an alternative to sub-prime mortgage candidates by offering deals to non-conforming applicants designed to increase their credit score over time without being penalised by sky-high rates in the process. A selection of high-street lenders are offering these specialist mortgages on a case-by-case basis, with the aim of allowing consumers in the sub-prime group to make the step to prime territory through the use of special mortgages operating on a step-up interest rate system.
These mortgages basically offer a set interest rate for a certain period (usually 1-3 years), after which the borrower will be reassessed. If repayments have been maintained to a satisfactory level they may be eligible to move to a lower interest rate, thereby solving the essential bad credit problem – how to build up a good credit rating if you are unable to obtain credit – without paying inflated rates through the use of a sub-prime specialist lender.
Credit repair mortgage schemes are also being considered as an option for current mortgage customers who have fallen into arrears on their mortgage – lenders can offer credit repair schemes in order to retain their custom and build consumer confidence existing borrowers.
These options are opening up the mortgage market to a valuable section of consumers who are often overlooked, and cultivating consumer confidence within a property market that needs a constant source of new buyers in order to sustain itself. To read more on mortgages, visit our mortgage section.
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