Subprime mortgages may be becoming a more common sight again for people looking to purchase a home, but what exactly are they and what implications may they have for borrowers?
Firstly to clarify, the old subprime mortgages and remortgages used widely in the period prior to the market collapse in 2008 are no longer utilised, many of the lenders are no longer available and the lenders were over zealous in their pursuit of volume. However there are lenders that are more accurately termed near prime and these mortgage lenders allow people who may have impaired credit ratings get themselves onto the housing ladder by giving them the opportunity to get a deal, albeit with an interest rate that`s likely to be higher than those experienced by people who do not have subprime elements to their finances.
The higher rate reflects the level of risk being taken on by the mortgage lender, they work on the basis that people with impaired finances are more likely to default on what was owed. The subprime lending decision is complex and can be made after judging items like: if the would be borrower has much experience with debt, how they have gone about paying debt more recently and whether they have a large enough deposit for a purchase or suitable assets to be used as security for a remortgage.
To help see where you stand at the moment, you may wish to contact First Choice Finance to consider your options when it comes to subprime remortgages.
At First Choice Finance, our dedicated mortgage advisers will identify the best subprime remortgage for your circumstances from our panel. Find out more at firstchoicefinance.co.uk or call and talk through your goals on 0333 003 1505 or 0800 298 3000.
Allowing more people to buy houses helps property prices to increase, which, on the surface, seems to suit everyone: banks are able to do more business, a greater number of people can move out of their parents or rented properties and those already on the property ladder are able to use the equity built up, if any, when they move up to the next rung.
In the early 2000s, this helped to inflate the housing bubble but, like all bubbles, it was always likely to pop. This happened in 2007 after American levels of higher risk subprime mortgages started making up a much greater percentage of the total market. This resulted in more people being unable to make repayments, which didn`t just send the US market under, it contributed to the credit crunch that was felt around the world.
For years during and after the recession, it became extremely difficult for a lot of people to get mortgages, even if they had a decent credit history, let alone `subprime`. This was down to banks looking to minimise their risk exposure as much as possible so deposits needed to be large and criteria very tight.
This left people with impaired credit ratings living with their family or in rented properties for longer, but with the introduction of numerous government schemes like New Buy and Help to Buy, the mortgage purse strings have been loosened and now more people are able to make purchases or move home again.
However, things haven`t gone back to exactly how they were before the crash: these days, subprime mortgages are much closer to the level of prime mortgages, albeit not so much that they are unable to help people get onto the property ladder.
There are also people who are still on subprime mortgages from around the time of the credit crunch, who may not be sure about what to do. The fact is if they have kept up their repayments they may well now qualify for a prime mortgage in any case, so it may well be worth checking out where you stand.
Homeowner Secured Loans
Rates From 7.1% APRC
Representative Example £30,000 over 72 months @ £679.90 repayments. Total payable of £49,949. 20.1% APRC including £2,975 intermediary fee and a £995 lender fee. Loans secured on property.
First Choice are tied to certain loan providers.
Mortgages & Remortgages
Borrow £80,000 over 25 years
At 4.6% Variable, £461.95 for
300 months. Total Payable
£138,585. Total Cost Of
Credit £58,585 (incl £1360 fee).
Unsecured Personal Loans REPRESENTATIVE 49.9% APR (VARIABLE)
First Choice are tied to certain unsecured lenders.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. Security is required on
Established In 1988. Company Registration Number 2316399. Authorised & Regulated By The Financial Conduct Authority (FCA). Firm Reference Number 302981. Mortgages & Homeowner Secured Loans Are Secured On Your Home. We Advice Upon & Arrange Mortgages & Loans. We Are Not A Lender.
First Choice Finance is a trading style of First Choice Funding Limited of The Old Courtyard, 103 Buxton Road, High Lane, Stockport, Cheshire. SK6 8DX. Copyright protected 2014-2018.