The number of lenders who are willing to offer mortgages to people with poor credit ratings is on the rise, opening up the market for those who would otherwise struggle to borrow for a home.
Banks and building societies are relaxing their lending standards as competition for borrowers continues, and the weakened housing market squeezes their profits. For borrowers with a poor credit history who have faced difficulties securing a mortgage, the result has provided a significant opportunity.
Increase in credit repair mortgages
According to Moneyfacts.co.uk, credit-impaired deals have risen by 118 to 843 over the last six months. Credit repair mortgages may only represent 17% of the mortgage market, but they can make all the difference to borrowers unable to get a regular mortgage deal due to a poor credit rating.
Lenders offering credit repair mortgages are willing to take on the perceived additional risk of lending to someone with a poor credit history. As a result, they do come with higher interest rates and charges; a two-year fixed rate credit repair mortgage has risen by 0.17% in the last six months to 4.53%, significantly higher than the average two-year fixed rate of 2.54%.
While the higher rates might seem off-putting, they are a reflection of the increased risk these borrowers pose to lenders. Since the financial crisis in 2008, lenders are unlikely to relax their lending criteria so drastically; in August 2007 credit-impaired deals accounted for 55% of the market. A cautious approach to credit-impaired borrowers is a calculated risk for lenders today.
A lifeline for borrowers
Despite the higher costs, a credit-repair mortgage could be a lifeline for many. The ideal candidates are borrowers with minor issues in their credit history that find themselves unable to obtain a mainstream mortgage. Not only does it give them the opportunity of a mortgage, but also a chance to improve their credit score for future borrowing opportunities through regular mortgage repayments.
