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Subprime mortgages

Updated: March 12, 2021

Pete Mugleston
Author: Pete Mugleston Mortgage Advisor, MD

We receive a large number of queries about subprime mortgages from customers who don’t qualify for most high street mortgage products, but are in need of finance to buy a property. Whether it’s due to work, personal issues or simply through having poor or no credit history, there are all sorts of reasons why some borrowers find themselves unable to access standard mortgages.

Fortunately, the expert advisors we work with can guide you through the options available: if you’ve been declined for a mortgage due to falling short of the criteria imposed by most lenders, we’d be happy to help by putting you in touch one of the bad credit mortgage brokers we work with.

These specialists have access to products not available to the general public, and experience of negotiating the best possible deals for customers in the same situation as you.

What are subprime mortgages?

Subprime mortgages are made available to clients that don’t fit the lending criteria for high street mortgages, usually due to credit issues and/or a number of other factors that place them in the category of ‘higher risk’ borrowers. They tend to have higher interest rates and require larger deposits and are usually issued by specialist lenders with ‘whole-of-market’ access.

Why would someone need a sub-prime mortgage?

There are a variety of reasons why a would-be borrower might fall outside the usual eligibility criteria set by most lenders and look to the subprime mortgage market for funds, ranging from general low credit score to bankruptcy.

Applicants may have incurred adverse credit such as CCJsdefaults or mortgage arrears, or they may have little to no verifiable credit history at all – often they may have multiple issues contributing to an overall higher risk profile which a lender will review when they do a mortgage credit check.

In some cases, relatively minor issues such as not being on the electoral roll can push clients into the subprime position, as can being very overcommitted on credit and missing payments.

Moreover, a sudden drop in income or separation can result in financial blips that may, unfortunately, incur a default, a county court judgement or even mortgage arrears.

If you’re applying for a joint mortgage and one applicant has bad credit this may also mean that you are more in a subprime position as the other applicant’s bad credit will be taken into consideration and some lenders may refuse.

While many of these issues may be only temporary blemishes on an individual’s record, they can lead to problems in accessing credit at times when it may be needed, so this is where subprime mortgage brokers and their knowledge of this market can come in useful.

Make an enquiry for a free, no-obligation chat and we’ll match you with a broker experienced in helping other customers in similar circumstances.

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How much deposit do subprime mortgage companies request?

Loan to Value (LTV) ratios on subprime mortgages tend to be slightly lower, meaning you’ll need to put down a larger-than-average deposit, reflecting the higher perceived risk to the lender.

Deposits of 25-30% and above are typical for subprime mortgages, but for applicants whose credit issues are at the ‘lighter’ end of the scale, some lenders will offer 20%. This compares with typical LTVs of 85-95% on standard residential mortgages.

UK sub-prime mortgage rates

As mentioned above, subprime mortgage rates tend to be somewhat elevated when compared with standard rates, but growing confidence in the last few years has led several lenders to venture into the sub-prime mortgage market, resulting in a wider range of interest rates and products.

The rate you are offered will depend on the degree of severity of the bad credit issues on your file, so the greater the number of adverse events and the severity of them will result in a higher rate.

At the time of writing, many lenders are offering rates at around 4.5-5.5%, while the lowest subprime mortgage rates are set at around 2.5%.

Rates at the highest end can reach more than 8% – for the most up-to-date figures, make an enquiry to speak to a specialist broker.

Don’t forget that in addition to any credit issues that may place you in the subprime category, your mortgage application will also be subject to the usual factors that can affect the type of rate lenders will offer and whether they make an offer at all, such as your income type, age, location and whether you’re buying a property with non-standard features.

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What are the alternatives to subprime mortgage loans?

If you’re put off by the higher rates and deposits needed for a subprime mortgage, there are some alternatives to consider.

These include:

  • Getting a guarantor – Some lenders will accept applicants with bad credit on more favourable terms if they are able to nominate a family member as a guarantor who is obliged to step in if they cannot fulfil their commitments to the lender.
  • Saving for a large deposit – If you’re in the position of being able to put down a significant deposit your risk profile will usually be lowered and you are likely to be offered better deals.
  • Wait it out. Some credit issues are time-limited, and will become less of an issue after a number of years have passed. Speak to an expert to find out if this applies in your case.
  • Get your finances in better shape – There are a number of things you can do to improve your personal creditworthiness, such as ensuring credit cards and other bills are paid on time and don’t forget to make sure you are registered on the electoral roll. Furthermore, steer clear of payday loans as it is always more difficult to get a mortgage after using a payday loan.
  • Put up additional security – Do you have other assets that could be leveraged to increase the lender’s confidence in your ability to repay the loan?

Where can I find a subprime mortgage calculator?

The majority of subprime mortgage lenders don’t deal directly with the public and tend not to have customer-facing sites, so there are not many specific calculators available for products of this type. However, once you have an idea of the rate and deposit you’re expecting to be offered, you can plug the figures into any mortgage calculator.

Important

Don’t forget, the results will be entirely provisional and it is always better to speak to an expert who can give you a much more realistic idea of what you can expect to pay on any mortgage and who will be able to identify the best subprime mortgage provider for your needs.

Subprime mortgage lenders

Most subprime lenders in the UK are specialist providers that don’t operate on the high street and there is no definitive subprime mortgage lenders list because the market is evolving all the time! However, there are a number of well known standard mortgage lenders that will consider applicants with various forms of bad credit.

Taking the example of Skipton, subprime mortgages are not offered as a specific product but a history of bankruptcy may be accepted if it occurred at least four years ago, whereas Barclays or NatWest mortgages do not usually consider applicants who have been made bankrupt within the past six years. Similarly, Halifax does not offer subprime mortgages per se but will usually accept applicants with IVAs, whereas the Post Office does not accept IVAs but may consider a mortgage with a CCJ.

By speaking to a whole-of-market broker like the advisors we work with, you should be able to find out which lenders will accept applicants with your specific credit issues and what rates you can expect to be offered, and they can additionally offer you information on the products you won’t be able to see as a consumer.

Article key takeaways

  • 01

    Getting a mortgage with bad credit is possible

    Bad credit mortgage applications are a common query, and the mortgage brokers we work with deal with this on a day-to-day basis. With so many different deals and lenders out there, there's likely to be one right for you.
  • 02

    A broker can help you get it done right

    The right mortgage broker can be the difference between approval and decline, particularly with bad credit mortgages, it's important to get the right advice
  • 03

    Understand your credit report

    It's important to understand your credit report and see what types of bad credit appear as different lenders will accept different types of bad credit and depending on what type of bad credit you have, this will determine the route your expert broker will take.
  • 04

    Find the right mortgage lender

    Choosing the right mortgage lender is absolutely vital. The best way to find your best chance of approval is to speak to an expert. The brokers we work with are specialists in finding people with bad credit a mortgage right for them.

Make an enquiry for a free, no-obligation chat and we’ll match you with a broker experienced in helping other customers in similar circumstances.

  • Check mark Rated 5 star on Feefo
  • Check mark Specialists in bad credit applications
  • Check mark Access to more deals from more lenders
Get Started

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 who 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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