Updated: December 15, 2021

Subprime Mortgages

Have a low credit score and want to know how you can still borrow money to buy a house? This guide will tell you everything you need to know about subprime mortgages

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No impact on your credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: December 15, 2021

With so many different factors at play, it’s not unusual for someone to have a less than ideal credit history or even some unresolved debt. Thankfully that doesn’t have to be a barrier to getting a mortgage. Subprime mortgages, otherwise known as bad credit mortgages, offer a viable lending solution to those who fail to meet most lenders’ criteria, whatever the reason may be.

This guide breaks down what’s involved with subprime mortgages, how to apply for one and who to ask for any guidance you may need during the process.

What is a subprime mortgage?

At the most basic level, a subprime mortgage is a type of loan available to those who would likely be rejected by high street lenders usually because of the following reasons:

  • They have either a bad or no credit history at all
  • Have previously been declared bankrupt
  • Have significant debt that has led to county court judgements, individual voluntary arrangements or mortgage arrears

More minor issues such as a few missed payments or not being registered to vote can also be the issue. Rather than one of these being enough to derail a mortgage application, it’s usually a collection of these factors that lead to a no from a lender.

Typically offered by specialist lenders, subprime mortgages are home loans with higher interest rates and require bigger deposits to mitigate against the higher perceived lending risk. A little harder to find, you’d need to work with a broker specialising in bad credit to access a subprime mortgage lenders list and apply.

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How to get a subprime mortgage

The process of obtaining a subprime mortgage is much the same as that of a regular mortgage with a few nuances. Here’s what to do:

Step 1: Determine whether a subprime mortgage is indeed what you need.

If you’ve forgotten to pay that credit card bill a few times or been late on paying the council tax, don’t automatically assume you won’t be eligible for the more conventional rates and mortgage terms. Try downloading your credit reports to first determine whether or not you have any potential – major – issues still showing on your records.

You can also check whether there’s any inaccurate or out of date information that should be removed before a mortgage lender sees it.

Step 2: Engage with a bad credit broker.

Bad credit experts will know by a quick analysis of your situation if a subprime option is best for you and, with exclusive access to most specialist lenders, they’ll be able to assess the market and identify a lender that’s likely to give you the best mortgage loan for your circumstances. You’ll need to fully disclose your whole financial situation to give a broker the best chance of finding you a great deal.

If you get in touch we can arrange for a subprime specialist we work with to contact you straight away for a free, no obligation chat.

Step 3: Submit a mortgage application.

Once a broker has sourced a bank or building society for you to apply to, it’s time to submit your loan application. A broker will be able to help compile the necessary paperwork while advising on any additional information that could temper those red flags. If successful, you’ll receive a mortgage in principle that will allow you to start hunting for the perfect property within your price range.

Take a look through our mortgage application guide to see exactly what documentation may be necessary.

Eligibility criteria

As with any mortgage product, a lender will be looking to ensure you meet the criteria they have in place. More specifically, they’ll be looking closely to ensure that, in spite of any credit issues, you really will be able to make the agreed repayments. A subprime mortgage lender will ask about your:

  • Deposit: In a subprime mortgage scenario, a lender will require a more significant deposit than the typical 5% or 10%. In most cases, a lender will consider a 20%-25% deposit acceptable but this would depend on how severe the reasons are for not qualifying for a conventional mortgage.
  • Credit history and debt: This could be one of the issues preventing you from accessing an optimal mortgage and so a lender will want to know whether the issue is bad credit or no credit at all. They’ll need to know the size of any outstanding debts as well as any information on outstanding IVAs and CCJs. This will influence the rate and terms offered to you.
  • Income and employment type: The ideal borrower is someone with a steady income who has been employed for a number of years. If that’s not the case, you’ll likely still be able to get a mortgage however there’ll be some additional paperwork to submit and it will play a role in the interest rates and deposit required.

Property being purchased: Some properties are considered higher risk – for example those in areas prone to flooding, in high rise buildings, or made of concrete — and if the property you have in mind is considered as such, this can be an issue for certain lenders.

Finding a lender

High street lenders don’t usually offer subprime mortgages because of the higher risk. Instead, subprime lenders tend to be specialists such as Aldermore, Vida Homeloans and MBS Intermediary. Their specialist nature means that a quick Google search likely wouldn’t give you a solid list and many won’t work with a borrower who approaches them directly.

Some high street lenders do however offer workarounds for some of the red flag issues. For example, Foundation Home Loans accepts a history of CCJs with the caveat that they have been settled and have happened over three years ago. If they’ve taken place within the past year or two and are no higher than to the value of £200, they must be settled at application. HSBC will also consider applicants with IVAs as long as they’ve been settled for more than three years.

The rates you can expect

If you do opt for a subprime mortgage, expect interest rates around 5%. However, be warned that in certain circumstances they can creep up to 8% but also go as low as 2.5%. The exact rate will be based on your overall circumstances as well as the lender’s assessment of your affordability and your deposit size. If it’s a case of not being on the electoral roll the rate might be lower than if you’ve been bankrupt.

An expert would be able to assess the whole of the subprime lending market and recommend which lender is likely to give you the lowest rate and require the least deposit amount.

Alternatives to a subprime mortgage

If you are in urgent need of a housing loan and have what might be considered as a black mark next to your name, a subprime option means credit isn’t completely cut off to you. However, the situation still isn’t ideal. With higher rates you’ll ultimately be paying more over time than in a conventional mortgage. It might be worth considering if you can instead:

  • Wait until your issue is resolved and apply for a conventional mortgage at a later date (bad credit is usually wiped from a record after six years);
  • Improve your credit score by paying off debts and not making any large purchases in the months before your application;
  • Save more of a deposit to counter any adverse risk;
  • Ask a family member or close friend to act as a guarantor on a conventional mortgage.

Get matched with a specialist subprime mortgage advisor

In this scenario, having on-hand specialist advice from an expert who knows the subprime mortgage market, as well as the application criteria and how to navigate it, is key. Engaging a broker will see you connected to a lender more likely to accept your application, saving you time, money as well as avoiding rejections that will only add further complications to the process of getting a mortgage.

Reach out today and you’ll swiftly be matched with a broker knowledgeable in the bad mortgage space so you can get access to tailored advice from the time of inquiry to the point of sale. Call 0808 189 0463 or fill out this enquiry form for a free, no-obligation consultation.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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