Rise In Adverse Credit Mortgages But Moneynet Warns That Many Borrowers Could Be Eligible For Cheape

MORE and more mortgage borrowers are taking out expensive adverse credit home loans when they could qualify for significantly cheaper deals, reports Moneynet.

The online financial data comparison site has seen a 20 per cent increase in the numbers of borrowers opting to take out mortgages offered by specialist brokers dealing with the ‘non-standard’ mortgage market.

"The increase in demand for adverse credit mortgages is undoubtedly a symptom of people overstretching themselves," said Moneynet chief executive Richard Brown.

"And it is also a worry that adverse credit deals, which can be more profitable for lenders and brokers alike, are being promoted to borrowers who may be eligible for standard mortgage deals from High Street lenders.

In many cases, where the previous difficulties have been minor, i.e. minor arrears or small CCJ’s, a High Street lender can often be persuaded to lend at normal rates if the borrower’s case is presented properly.

But Brown warns that it may often be just a case of identifying the lenders that are ‘hungry’ for business to find the flexibility in lending policy - which means they will help customers they would otherwise have turned away.

"Whilst we believe that the adverse mortgage market is important and, for more serious cases, the only way that many people can borrow money to buy a house, the premiums being charged on the interest rate make these deals look unattractive when compared with the mainstream market.

"We are concerned that some borrowers are being pushed into these more expensive deals when they could be eligible for mainstream deals at normal rates.

"Our advice, except in extreme cases, would be to discuss the individual details with an independent broker with a view to establishing whether or not a deal can be struck at normal rates. Only when this avenue has been exhausted should a borrower look at the adverse mortgage deals at higher rates."

As an example of the savings that can be made, BM Solutions is currently offering a deal for adverse credit borrowers at 5.75% fixed until 1 March 2008.

Alternatively, for those with good credit, First Active is offering a fixed rate at 4.95% until 31 July 2008. On a repayment mortgage of £120,000 over 25 years the BM Solutions deal would cost £764 per month and the First Active deal £706 per month, a saving of £58 per month or nearly £1,400 over two years. Not an insignificant sum when it’s remembered that these borrowers are already financially stretched.

Adverse Credit Fixed Rate Mortgages:
NAME RATE FIXED UNTIL FEE MAX LTV
BM SOLUTIONS (1) 5.75% 01/03/2008 £599 90%
CHESHIRE BS (2) 5.74% 31/03/2009 £545 80%
SCARBOROUGH BS (3) 5.89% 30/08/2011 £495 80%

1. Accepts: CCJ’s max £1000 (none in last 6 months), mortgage arrears 1 month in last 12, bankrupts discharged for 1 year or more or IVA’s satisfied for 6 months
2. Accepts: CCJ’s max £2500, defaults max £500 registered in last 3 years but none in last 6 months, 1 month mortgage arrears in last 6 months or 2 months in last year, bankrupts discharged 2 years or IVA’s satisfactorily completed over 1 year ago.
3. Accepts: CCJ’s max £3000 ( none in last 3 months), up to 2 months mortgage arrears in last 12 months (none in last 3 months), bankrupts discharged 12 months or IVA’s satisfied 6 months

Prime Mortgages:
NAME RATE FIXED UNTIL FEE MAX LTV
FIRST ACTIVE 4.95% 31/07/2008 £499 95%
PORTMAN 4.89% 30/06/2009 £499 95%
DIRECT LINE 4.89% 30/06/2011 £499 95%

Source: Moneynet.co.uk June 2006

For further information please contact one of the numbers below.

Consumer enquiries: 0208 460 2833/ Moneynet financial comparison site.

Press enquiries:

Richard Brown, Chief Executive, Moneynet 020 8313 9030

Cathy Tully, Account Manager 01273 774109 / 07747 196854
David Andrews Media Ltd
cathy@davidandrewsmedia.co.uk

David Andrews, Director 01273 774109 / 07941 255855
David Andrews Media Ltd
david@davidandrewsmedia.co.uk

Sophie Hood, Account Executive 01273 774109 / 07990 847025
David Andrews Media Ltd
sophie@davidandrewsmedia.co.uk

Editor's notes
Moneynet financial comparison is the UK’s longest established online personal finance research and data analysts. The company offers consumers a choice of thousands of low cost financial services products. From mortgages, personal loans to motor, home and medical insurance, credit cards, savings accounts and best buy fixed rate products, Moneynet is one of the most comprehensive online services of its kind in the UK. Founded by chief executive Richard Brown, the Moneynet brand is destined to become one of the UK's major players in consumer finance products.