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Debt advice basics

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As the nation's debt levels grow, we point to a few issues that may affect your credit rating.

Debt advice – credit impaired mortgages

You are certainly not alone if you have experienced financial difficulties at some point in your life. This could cover anything from missing a credit card repayment to filing for bankruptcy.

Unfortunately, this will almost certainly affect your ability to access a competitive mortgage deal. In fact, since the credit crunch hit the UK mortgage market, any black spots on your financial history could prevent you from finding a mortgage full stop.

Bad credit mortgages (also known as impaired credit, or sub-prime mortgages) were, prior to the credit crunch,widely available to UK borrowers.

Pre-2007, many lenders decided to offer special mortgages to those classed as sub-prime borrowers (typically at a higher rate than standard deals). This included anyone who had ever been declared bankrupt, who had fallen into arrears on a mortgage or who had suffered other debt problems in the past. Bad credit mortgages were also available to those with County Court Judgements (CCJs).

Bad credit mortgage lenders

Unfortunately for those looking for a bad credit mortgage at the moment, the UK sub-prime mortgage sector has been severely affected by the credit crunch, resulting in a massive contraction of the market. While a small number of specialist lenders still cater for ‘near-prime’mortgage borrowers, who may have complex needs or very slight credit impairment, no institutions currently offer ‘sub-prime’ borrowing.

As a result, if you are currently on a sub-prime deal taken out before the credit crisis, your repayments may rise significantly once your initial deal period comes to an end.

If you still require a bad credit mortgage, you may find it hard to access a new deal since the market is now a lot smaller than it was up until the final quarter of 2007.

Pre-credit crunch, there was a wide variety of bad credit deals available, many with very competitive rates. Some sub-prime borrowers were even able to get rates that were only slightly higher than some standard mortgage deals.

However, this variety is no longer available as lenders have tightened their criteria and ceased lending to riskier borrowers, such as those who require bad credit mortgages.

But if you do need to remortgage to a new sub-prime deal, don’t give up hope just yet.

Speak to your current lender to find out what kind of products it has on offer at the moment.

It may also be a sensible idea to seek independent advice. A mortgage broker or adviser will be able to search the entire market for new deals and can look at your current financial situation and provide tailored information and advice about your options.

You can also use best buy tables to get some idea of the rates currently on offer from UK mortgage lenders.

If you do find some suitable deals, using our mortgage calculators may give you some idea of the rates on offer. But it can also make sense to consult a bad credit mortgage broker: they will have access to all of the bad credit mortgage deals available on the market, many of which may not be available direct to the public.

Make sure you can afford any fees attached to the product as well – you can calculate how much this is likely to cost using our mortgage fees calculator. Think carefully about what you can afford to put aside for your mortgage repayments and the associated fees.

If possible, it may be worth waiting on your lender’s Standard Variable Rate until you find a product that suits your current circumstances. Again, our mortgage calculators will help you work out the monthly repayments due if you choose this option.

Bankruptcy and mortgage arrears

You may have a bad credit rating if you have been declared bankrupt, fallen into arrears or incurred a County Court Judgement (CCJ) in the past. But if you have never had a bank account or have lived at lots of different addresses, this may also count against your credit status.

Once you have been with a sub-prime lender for three years, as long as you keep up your mortgage payments you should have repaired your credit rating, at least to some extent.

Before the credit crunch, you would have been able to return to the mainstream market and access a new deal at a lower rate. However, you may find the transition from bad credit mortgages to mainstream mortgages slightly more difficult now.

Most lenders have reassessed their attitude to risk and are now reluctant to lend to those with any previous financial problems, no matter how small.

However, don’t write off your chances of getting a mortgage before checking with a financial adviser, you may find there is a deal to suit your circumstances.

Check your credit rating

If your mortgage application has been rejected, or you simply suspect that you may have a bad credit rating, you can access your credit record via one of the following: Experian UK My Equifax Checkmyfile Once you have access to your credit report, check that all the details are correct.

Regularly checking your report will help you spot any mistakes and allow you to ensure you do not fall victim to identity theft.

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