Mortgage Q&A: Credit history

“I want some mortgage help but I have had a few money problems in the past. I don’t suppose you could help?”

This is an all too often call these days and if it was made 10 years ago I would have had to say politely “Sorry, no chance!” and put the phone down feeling a little unhelpful. I’m pleased to say that things have changed and we now have access to a handful of lenders who specialize in this “arrears” and “adverse” market place.

A lender recently told me that just under 200,000 more county court judgements (CCJs) were registered in 2016 than in 2015 and the total number registered last year is a staggering 80,000 more than in 2008, at the height of the problem.

Now, balance that with a major lender declining one of its existing customers last week because they had an unknown £27 default with a mobile provider, and you start to see the problem here. Adverse credit can really restrict your options.

(I got that overturned you will be pleased to know.)

I try and deal in solutions, so here is a flavour of what 3 of my specialist lenders could offer a customer who has experienced some financial trouble.

Before we begin, it’s important to note that you will need to obtain and show an up to date credit report, along with bank statements, details of income, and details of any monthly financial commitments you have.

This information is important to give your adviser the fullest possible picture and put them in the best position to try and help with your case.

Credit Search | HHH Mortgages

Lenders Undertake A Credit Search

The first point to make is that it’s important to understand these lenders do not credit score, they credit search. What is the difference and why should I care?

Well, a credit score for a lender needs to reach a number of points. Points make prizes, or to put that in other terms, a lack of points on the lenders scorecards means no loan. So, most forms of financial mismanagement, or lack of credit even, will leave the customer short. But credit scoring isn’t looked at here.

It’s credit searching that’s much more important when looking at any arrears issues.

Credit searching is just viewing the credit file and then a human underwriter making a yes, no, or maybe decision depending on all the circumstances and evidence I can show the lender.

The fact that it’s manually underwritten means there’s often more flexibility to deal with a range of adverse credit issues.

What many will want to know is when can such a lender help? “I doubt they’ll help me!” I hear you cry.

So, let’s look at some anonymised lenders and the key criteria from 3 helpers who want to try and assist in what is known the adverse market place.

Criteria | HHH Mortgages

Lender Criteria

Lender A

  • Up to 2 unsecured missed payments in last 12 months, if you’re now up to date
  • Defaults, secured loan arrears or satisfied county court judgements, if older than 24 months
  • Can consider unsatisfied county court judgements older than 24 months
  • All communications defaults ignored (i.e. phone bills etc.)

Now let us look at what an even more specialist lender will consider,

Lender B

  • County Court Judgements (satisfied (the debt has been settled) or unsatisfied) more than 12 months old
  • Defaults more than 12 months old (unless the debt was included within a Debt Management Plan (DMP))
  • Repossessions over 12 months old may be considered, subject to confirmation that any shortfall has been or is being made good or has been forgiven
  • Bankruptcy/Debt Relief Order discharged over 12 months ago will be considered, subject to a Certificate of Discharge (if it does not show as discharged on a credit search)
  • Applicants subject to an Individual Voluntary Arrangement for more than 12 months that has been conducted satisfactorily
  • Applicants subject to a DMP for more than 12 months that has been conducted satisfactorily

And now let’s look at;

Lender C

  • CCJs: Max 2 totaling £3,000, registered in 24 months (none in last 3 months)
  • Defaults: 2 totaling £3,000, registered in 24 months (none in last 3 months)
  • Arrears (secured): Max 2 payments missed in 24 months (none in last 6 months)
  • Arrears (unsecured): Max status 2 in 24 months (none in last 3 months)
  • Bankruptcy/IVA/Debt Relief Order: Discharged +72 months
  • Debt Management Plan: Established +12 months and Discharged, or satisfactorily conducted
  • For loans up to 85% loan-to-value* (LTV)

Let us try and break that detail down into simple bite-sized points:

  • If you have a CCJ up to £3,000 registered but not settled of over 3 months in age, you could be helped
  • If you are no more than 2 months in arrears on your credit card and those arrears are more than 3 months old, you could be considered
  • If you had a Bankruptcy order against you more than 12 months ago and you have been discharged, you might be assisted
  • If you have a default that’s more than 2 years old but not satisfied, you could be assisted

The other rules still apply

Naturally, all the lenders key criteria like loan to value*, proof of income and affordability still apply in addition to the specialist adverse criteria.

Plus, the above is subject to change and alteration according to market conditions and the lenders desires.

But the good news is that if you have had some historic debt and payment problems reading the above should give you some hope.

Get an up to date credit report and let a broker who has access to specialist lenders have a look. This is one area where a specialist broker’s expertise becomes invaluable.

Remember the loan must be affordable to include all other monthly commitments you have.

Rates | HHH Mortgages

How does this affect rates?

“What about the rate?!” I hear you cry.

As a rule of thumb, the worse the problem the higher the rate and actual deals and products need a proper discussion. In many cases customers will find the rates affordable and competitive. Lenders deem this business high risk so there is a premium to pay. But the fact that they are there in the first place is a great advance on a few years ago.

Want some help?

We work with a number of different lenders that specialise in helping those with any credit problems.

Get in touch with us and we’ll chat to understand more about your specific details and advise accordingly.

Call: 01453 887179

Email: mark@hhhmortgages.com

 

* Loan-to-Value or LTV is the percentage of loan required against the total value of the property. So, if you’re looking to buy a £100,000 property and have a deposit of £20,000, you’ll require an £80,000 loan. £80,000 / £100,000 = 80% LTV.