With the number of residential mortgages seeing a steady overall increase over the past year, it may not be so surprising to find that the number of credit-impaired deals has also risen, by 118 over the last six months, as lenders try to attract different types of consumers.
"Credit repair mortgages represent a small proportion of the mortgage market – just 17%," said Charlotte Nelson, finance expert at Moneyfacts.co.uk. "However, in the past six months, the number of deals has increased by 118 to stand at 843 in August. This is good news for borrowers who have struggled with a poor credit history in the past and had difficulty in obtaining a mortgage."
Indeed, given the low number of such mortgages available, many people may not even realise this type of mortgage exists. Yet they can make all the difference to those borrowers whose credit rating is insufficient for a regular top mortgage deal.
|Number of credit-impaired mortgage deals||751||725||843|
|Average two-year credit-impaired fixed rate||4.37%||4.35%||4.52%|
"Despite this boost in the number of deals, however, the two-year fixed rate for those with a poor credit history has risen a whopping 0.17% in the past six months to stand at 4.52%," Charlotte added. "Not only have rates risen dramatically but, as to be expected, the prices offered by these deals are far higher than standard options on the market."
In contrast, the average two-year fixed rate mortgage is 2.54% – a massive 1.98% lower. "While the difference may appear stark, the higher prices do reflect the extra risk that is involved to the provider," Charlotte said.
That said, the risk is nowhere near that seen before the financial crisis, with the 5,106 credit-impaired deals available in August 2007 accounting for 55% of the entire residential mortgage market. Charlotte pointed out that lending principles were much more lax back then, whereas "lenders are now required to delve a lot deeper into a borrower's financial history to ensure they are able to afford the deal."
However, that doesn't mean borrowers should just go ahead and apply without doing some research of their own. Before any credit application, it's always a good idea to check your credit rating and do what you can to fix it if needed – our guide on improving your credit score can help with this. Who knows, you might find that with a bit of work, you'd be able to apply for a regular mortgage deal and get a much better rate.
For those for whom a normal mortgage is just out of reach, Charlotte has some closing words of wisdom: "[Credit repair mortgages] offer borrowers who have experienced minor issues in the past a lifeline to get back on track. However, any borrower considering this as an option should first seek advice from a financial adviser to ensure it is the right choice for them."
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.