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Mortgage rate fall for credit impaired customers

Mortgage rate fall for credit impaired customers

Category: Mortgages
Author: Leanne Macardle
Date: 02/04/2019

Credit impaired mortgage customers typically have the rough end of the deal when it comes to mortgages, with them typically facing far higher interest rates – and therefore higher repayments – than their more credit-worthy counterparts. However, the latest research from Moneyfacts.co.uk shows that average rates for credit-impaired customers have actually fallen of late, so despite the availability of such deals also falling, the products that are left should be able to better serve this demographic.

As the table below highlights, the number of credit-impaired residential mortgages available on the market has decreased by 261 products over the last six months, with there now being 590 products available, down from 851 in October last year. Yet although choice is becoming more limited overall, the average credit-impaired two-year fixed mortgage rate has fallen by 0.13% to 4.36% over the same period, while the average three-year rate has fallen by more than double that (0.30%) to 4.21%. Only the average five-year credit impaired rate has increased in that time, rising from 4.76% to 4.92%, a rise of 0.16%.

Credit-impaired residential mortgages



Oct-18


Apr-19


Difference


Number of products


851


590


-261


Two-year fixed average rate


4.49%


4.36%


-0.13%


Three-year fixed average rate


4.51%


4.21%


-0.30%


Five-year fixed average rate


4.76%


4.92%


0.16%

Source: Moneyfacts.co.uk
"Credit-impaired mortgages are an essential option to those borrowers who have experienced minor financial issues and were previously excluded from negotiating a new mortgage deal due to a lack of product availability following the financial crisis," said Darren Cook, finance expert at Moneyfacts.co.uk.

"Despite the reduction in choice over the past six months, the average credit-impaired two-year fixed rate has fallen by 0.13% from 4.49% to stand at 4.36% today, which will be good news for some borrowers, as providers appear to not be increasing rates for short-term fixed deals, even with the current economic uncertainties."

However, it isn't all good news. The average two-year fixed credit-impaired rate is still a far cry from the average two-year fixed rate of 2.48% available to full-status borrowers, while those looking to lock in their fixed rate for a little longer may notice rates increasing. The reduction in choice could also prove problematic, and looking further back highlights the decline in more detail.

As Darren points out, "back in August 2007, when lending principles and regulatory guidelines were much looser than they are today, there were 5,106 credit-impaired deals available – nearly 10 times as many as there are now – which accounted for a whopping 55% of the entire residential mortgage market."

This just shows how much things have changed, but the trade-off is that more stringent affordability rules should hopefully make the market a better option for borrowers overall. It could still be worth getting advice, however, as Darren concludes: "The credit-impaired mortgage market is considered a specialist lending sector, so it is no surprise that, according to Moneyfacts research, 91% of the total number of credit-impaired mortgage products are only available through a mortgage broker. It is clear that any borrower seeking a credit-impaired mortgage would be wise to speak to a mortgage broker first, regardless of whether or not it is required."

Disclaimer: 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.

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