Adverse credit mortgages
What is a ‘non-conforming’, ’sub prime’ or ‘adverse credit’ mortgage?
These are mortgages specifically designed for people who do not qualify for a mainstream
mortgage from lenders. They may be suitable in a variety of situations – for example, if you have
had credit problems in the past or have difficulty proving a regular or reliable income.
Such situations are unfortunately increasingly common. Life-changing events such as divorce,
unemployment and sickness can sometimes cause you to miss making payments on your mortgage
or other financial commitments. These things happen to many people at some stage in their lives,
but once such problems are behind you, they should not stop you applying for a mortgage.
Lenders and brokers who sell mortgages are regulated by the Financial Services Authority (FSA).
This means that they have to follow comprehensive rules on how mortgage advice and information
is provided. This also gives you important protection as a customer, including access to an
independent redress scheme (the Financial Ombudsman Service) if you have a valid complaint
about how your mortgage is sold or administered.
This leaflet is designed to give you information on adverse credit mortgages, and give answers to
some common questions. It specifically concentrates on ‘adverse credit’ mortgages for people who
have had financial difficulties in the past.
What should you think about before taking out an adverse credit mortgage?
There are a number of things you should consider before taking out any mortgage. The FSA has a helpful leaflet ‘Choosing a mortgage – taking the right steps’ which explains how to shop around and understand what you are getting. You should read that leaflet as well as this one.
You should be aware that you are likely to have to pay a higher rate of interest for an adverse credit
mortgage than for a mainstream one.
Who can you get an adverse credit mortgage from?
A number of lenders offer adverse credit mortgages. You can find information on the internet, in
the personal finance pages of a newspaper or through mortgage magazines sold in newsagents.
Some lenders only offer adverse credit mortgages through a mortgage intermediary or mortgage
broker. As there are lots of different mortgages designed to suit individual circumstances, you may
wish to use a mortgage broker who gives advice and who will be able to recommend a suitable
product for you.
What does a broker do and how are they paid?
A broker can help you find the right mortgage for your circumstances. They can either provide you
with information and you can choose your own mortgage, or they can give you advice and make a
recommendation on a mortgage.
When you contact a broker about a mortgage, they will give you a document telling you about the
service they can provide; whether they consider all the mortgages in the market, a limited selection
or just one lender’s products; whether they will give you advice or not; and what they’ll charge you
for the service. This is called an Initial Disclosure Document (IDD).
Some brokers charge a fee for arranging the mortgage for you. They may also get a payment from
the lender for selling you the mortgage.
Make sure you understand what service you will receive, what fees you will need to pay and when
you need to pay them. You may have the option of adding these fees to your mortgage, but if you
do so you will be charged interest on them, so they will cost you more in the long run.
