Subprime mortgages (also known as Non-prime Mortgages) allow people with low credit scores, typically below 600, to borrow for homeownership, even when they would ordinarily be rejected for conventional loans.
A subprime mortgage is a loan offered by a specialised or adverse credit lender, distinct from conventional high street mortgage providers. Such loans typically entail higher interest rates or necessitate larger deposits.
If you’re considering applying for a subprime mortgage, this is the guide for you. We cover everything you need to know, as well as how our advisors can help.
*Please be aware, your home may be at risk if you do not keep up repayments on your mortgage.
(1) Subprime mortgages provide individuals with poor credit histories access to mortgages they otherwise wouldn’t have the opportunity to obtain.
(2) Even if they’ve made detrimental financial mistakes in the past, individuals can still purchase a home or an investment property, building equity and improving credit scores through a subprime mortgage lender.
(3) If a person improves their credit score through regular, on-time payments, the good news is that they can potentially qualify for better rates on future deals when remortgaging.
Consider exploring subprime mortgages if you’re eyeing a new home or need to remortgage but face obstacles due to your credit history.
Subprime mortgages can be a lifeline for those otherwise unable to purchase a home. Consider subprime mortgages after exhausting your other options such as, improving your credit score, increasing your down payment or investigating any government or non-profit schemes available to you.
Scrutinise any subprime mortgage offers meticulously before proceeding. Ensure they’re manageable and align to your long-term financial objectives.
Consulting a seasoned mortgage advisor is highly recommended to navigate this complex decision effectively.
Before applying for a subprime mortgage, there are some important factors to consider first:
Lenders counterbalance the risk of lending to people with poor credit and financial issues by charging higher interest rates. Subprime mortgage rates can be up to 5% to 10% higher than rates for standard mortgages, those reserved for a lender’s qualified borrowers.
Down payments and closing costs can be substantially higher with subprime mortgages. In some instances, lenders may request down payments 25% to 35% higher for subprime loans. They do this to offset the increased risk of default with a subprime borrower.
If you’re worried about the stress and complexity that comes with applying for a subprime mortgage, having a qualified broker by your side can make the world of difference.
Their guidance can be invaluable, simplifying your journey from start to finish and ensuring that you make informed decisions every step of the way.
Fill out the form below to begin the process now:
Lenders evaluating subprime mortgage eligibility consider both the seriousness of credit events and their timing.
Credit issues are categorised into three levels: Minor Events, Medium Severity Events and Major Events. It's important to note that adverse credit events remain on your file for six years, yet many lenders only assess the most recent four years.
Missed payments (including, credit cards, bills and unsecured loans
Late payments (loans or credit cards)
Bounced direct debits
If your last minor event was more than one year ago, you’re likely to have access to high street lenders and better rates.
Usually, lenders will overlook any minor events that occurred prior to one year ago.
Many lenders will still consider your application if it’s been less than one year, but you may require a slightly larger deposit.
CCJs
(County Court Judgements)
Missed mortgage payments
Defaults (settled or unsettled)
With medium severity events, the age of the offence and how much it was for are considered when reviewing your application.
If any of the above medium severity events occur for you, it’s unlikely you’ll qualify for the best rates, and you may need to apply via a building society or subprime lender.
You should expect to have a minimum 10% deposit saved before applying.
IVAs
(Individual Voluntary Arrangement)
Repossession
Bankruptcy
If the major event was under three years ago, there are a small number of subprime options that may consider your application.
If the event occurred between 3-6 years ago, you’ll likely be limited to certain building societies or subprime lenders.
If the event was over six years ago, you’ll find high-street lenders will begin to start considering your application.
1) Deposit amount: A larger deposit can enhance the likelihood of approval. Subprime lenders may stipulate deposits ranging from 20% to 30% to mitigate lending risk.
2) Income: Subprime lenders typically necessitate full-time, permanent employment or self-employment with a consistent income. This stability aids in evaluating your capacity to meet mortgage obligations. If you’ve recently commenced a new job, it may be prudent to wait before applying for a mortgage to establish a solid employment history.
3) Credit score context: Not all instances of poor credit carry the same weight. Subprime lenders acknowledge that there can be mitigating circumstances behind financial histories. Therefore, they are inclined to consider more than just the numerical aspects of your credit report. Providing a clear explanation of the circumstances surrounding any defaults and County Court Judgments (CCJs) is crucial on the application.
Looking for a subprime mortgage might feel daunting, but we are here to help. As a company who is authorised to search the whole of market, Your Mortgage People has access to thousands of mortgage products, enabling us to help people from all kinds of financial backgrounds.
To speak to one of our friendly advisors about subprime mortgages, click here.
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