Louisa Sedgwick offers some key insights on bad credit mortgages (impaired credit mortgages).
1. Origins and history
The first bad credit mortgages (technically known as impaired credit mortgages) were offered to UK borrowers in the mid-1990s. Sizing this market has always been difficult but latest UK Finance figures show that specialist lenders grew their share of new lending significantly in 2016, to around 4 per cent, and this growth is expected to continue in the next few years.
2. What is impaired credit?
Traditionally, these borrowers have suffered financial problems, such as one or two missed mortgage payments, or they have county court judgments (CCJs) that were satisfied some time ago. However, many simply have a default posted on their credit record for a relatively small sum, put there by a utility company or mobile phone network. A total of 900,000 CCJs were registered in 2016, 30 per cent up from 2015.
3. Typical borrowers
Younger clients with a minor ‘credit blip’ or no/low credit score, or older borrowers who have been through divorce, business failure or bereavement, leading to arrears, CCJs, defaults or debt management plans. Up to three CCJs and two missed mortgage payments and three small missed unsecured loan payments in the past six months are generally considered by specialist lenders.
4. Impaired credit lenders
Lenders in this sector describe themselves in many ways (‘specialist’, ‘niche’, etc), but in general they operate exclusively via intermediaries and not on the high street, which currently excludes many impaired credit borrowers.
5. Market potential for brokers
Helping clients with impaired and improving credit records get the right advice and outcome is an essential part of a modern intermediary’s toolkit. With the housing and mortgage market looking to remain a difficult environment for certain borrowers, this will offer further opportunities in the years ahead.
Louisa Sedgwick is director of sales – mortgages for Vida Homeloans