Lender response

Bob Perks, business development manager, Britannic Money recommends the couple consider a flexible mortgage so they can make overpayments at peak times Surprisingly, 25% of us would be viewed as &#39non-standard&#39 by a traditional high street lender and could be refused a loan for one reason or another. Many use a &#39standard&#39 automated credit-scoring system to underwrite mortgages, however Mr Thompson&#39s credit record could pose some problems as he has had previous CCJs and recent mortgage arrears.

Most borrowers like Mr Thompson have valid reasons for their credit &#39blips&#39 and an imperfect history is not always indicative of future bad risk. For this reason, Britannic Money manually underwrites applications for their Flexible Restart Homeloan (Fresh), to ensure that the borrower has a chance to fully explain their situation, where possible.

In this case the nature of Mr Thompson&#39s business means that for around four months of the year the hotel is closed and often in need of maintenance or refurbishment and it is all too easy to fall behind. Whilst his previous CCJs are now satisfied, he may need to provide a full explanation with his application. The couple will also have to show proof of their last three months&#39 mortgage payments and to conform to money-laundering regulations, and will need at least one recent original document each showing their initials, surname and residential address.

I would recommend that the couple consider a flexible mortgage as it will suit their circumstances. The seasonal nature of the hotel business means that they can make overpayments during the &#39peak&#39 holiday seasons and then use this money to tide them over the low season or carry out essential maintenance work. Flexibility can also aid tax planning as they can withdraw overpayments to cover any bills. It is hoped that will mean no reoccurrence of mortgage arrears.

Fresh is therefore a good option as it allows for his recent mortgage arrears. The mortgage is available in three levels, depending on the credit history of the borrower. The product tracks LIBOR and all products have a 1.5% discount in the first year. Mr Thompson will have a 2.5% loading plus an arrangement fee of £450, which can be added to the loan. They would incur no High Lending Fee, however there is an Early Repayment Charge (ERC) of 6% in the first three years, payable on full redemption only. However, they can overpay up to 10% of the original loan amount per year for years 1, 2 and 3 without incurring an ERC.

Fresh offers flexibility through daily interest calculation, overpayments (limited for the first 3 years), underpayments and payment holidays, plus, on their first anniversary, the couple can apply for the current account. By combining their everyday finances through the bank account and paying in their salaries, they are, in effect, making regular overpayments and saving without even trying.