More mortgage borrowers are taking out expensive adverse credit home loans when they could qualify for significantly cheaper deals, reports Moneynet.co.uk.
The online financial data comparison site has seen a 20% increase in the numbers of borrowers opting to take out mortgages offered by specialist brokers dealing with the non-standard mortgage market.
Richard Brown, chief executive of Moneynet.co.uk, says: The increase in demand for adverse credit mortgages is undoubtedly a symptom of people overstretching themselves.
And it is also a worry that adverse credit deals, which can be more profitable for lenders and brokers alike, are being promoted to borrowers who may be eligible for standard mortgage deals from high street lenders.
In many cases, where the previous difficulties have been minor, such as minor arrears or small CCJs, a high street lender can often be persuaded to lend at normal rates if the borrowers case is presented properly.
But Brown warns that it may often be just a case of identifying the lenders that are hungry for business to find the flexibility in lending policy – which means they will help customers they would otherwise have turned away.
He adds: Whilst we believe that the adverse mortgage market is important and, for more serious cases, the only way that many people can borrow money to buy a house, the premiums being charged on the interest rate make these deals look unattractive when compared with the mainstream market.
We are concerned that some borrowers are being pushed into these more expensive deals when they could be eligible for mainstream deals at normal rates.
Our advice, except in extreme cases, would be to discuss the individual details with an independent broker with a view to establishing whether or not a deal can be struck at normal rates.
Only when this avenue has been exhausted should a borrower look at the adverse mortgage deals at higher rates.