Things to consider when choosing the Best Bad Credit Mortgage product
If you have had credit problems and are looking for the Best Bad Credit Mortgage, you will likely have to pay more, but the key is not to get stuck on a bad mortgage rate. But how bad is bad? The first point of a call should be to try and find out what type of information the 3 mi9an credit agency holds about you. The good news is we have teamed up with Check My File.
Choosing the right bad credit Mortgage Lender is in the details and I’ve covered this many times; however you also need to consider the mortgage product as don’t want to be stuck on a bad mortgage rate just because you have had credit problems.
In this article, we examine the types of mortgage product options currently available to applicants with credit problems.
2, 3 and 5 Year fixed rates offer set mortgage payments, are commonplace, and can be the right solution. However, I’m not going to dwell on these other than to say depending on your credit issues, it might be appropriate to select the length to coincide with when your bad credit issue drops off your credit file, which is typically 6 years after registration. However, like all product choices, this should be discussed with a suitably qualified bad credit Mortgage Broker, such as Niche Advice.
My focus is to challenge these standard mortgage products and open your mind to different options that you might not have considered to prevent you from getting stuck on a bad mortgage rate despite having credit problems, and this is discussed below:
1 Year Fixed Bad Credit Mortgage product
Why lock into a 2-Year Fix when your credit issues will not present a problem when you return to a high-street remortgage in 12 months’ time? High-street mortgage products are almost certainly going to be better, so you should aim to get back to them sooner rather than later, and this 1-year fix allows you to do so after the main early repayment charge expires in 12 months.
Main qualification rules:
- First time buyers, homemovers and remortgages.
- Minimum 15% deposit/equity.
- Defaults, CCJs or secured arrears recorded 3 months before application are not accepted.
- Minimum 15% deposit
– Defaults: 2 in 24 months (max £1,500 in 12 months, unlimited registered before)
– CCJ: 1 in 24 months (max £1,000 in 12 months or £2,500 in 24 months)
– Mortgage and secured loan arrears: 1 in 12 months, 3 in 36 months (worst status)
– Unsecured arrears: Not counted but may affect credit score - Debt management considered.
- Right to Buy, Help to Buy Remortgages, Help to Buy Wales Purchases considered on different terms.
Lifetime Trackers – No Main Early Repayment Charges
The rate is variable, so it goes up and down with the Bank of England Base Rate (BBR). At the time of writing August 2024, BBR has dropped for the first time since March 2020 and the market sentiment is to expect further reductions.
In the bad credit market, the initial rates are usually set higher than the fixed rates, but there is the added advantage that there is no main early repayment charge to repay the mortgage at any time, leaving you free to move Mortgage Lender should a better deal become available without having to pay a penalty fee.
Main qualification rules:
- Option A:
The same qualification credit problem rules as the 1-Year Fix. - Option B:
First time buyers, homemovers and remortgages. - Minimum 10% deposit/equity.
- – Defaults: 0 over £500 in 24 months (unlimited registered before)
- – CCJ: 0 over £500 in 24 months (unlimited registered before)
- – Mortgage and secured loan arrears: 0 in 12 months, 2 in 24 months
- – Unsecured arrears: Balances under £500 not counted but may affect credit score and affordability.
5 Year Step Down Fix – Rate Drops Over Time
As you have had past credit issues, fixed rates may be the preferred route as the set payments allow you to budget. This particular product is fixed for the first 2 years at one rate, then drops to a pre-determined lower fix for the remaining 3 years. As rates are widely expected to drop, the intention of the product is not to penalise you against the market at the time. The early repayment charge is for 5 years.
- Homemovers and remortgages.
- Minimum 15% deposit/equity.
- – Defaults: 0 in last 6 months (up to £1,500 in 24 months, unlimited registered before)
– Communication/Insurance/ defaults ignored. Utility defaults cannot exceed £250. - – CCJ: 0 in last 6 months (up to £1,000 in 24 months, unlimited registered before)
- – Mortgage and secured loan arrears: 0 in 3 months, 1 in 24 months
- – Unsecured arrears: 0 in the last 6 months.
- Debt management considered.
- Payday loans are acceptable if older than 6 months.
Hopefully, this article has made you more aware of the best bad credit mortgage options. Make sure you ask your bad credit Mortgage Broker to look into these if a certain type appeals so you don’t get stuck on a bad mortgage rate and pay over the odds. Importantly, it will enable you to return to a high street Mortgage Lender rate as soon as possible.
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