Subprime Mortgages

Everything you need to know about Subprime mortgages

Are you looking for a Subprime mortgage?

Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Nathan Porter

Reviewer: Nathan Porter

Independent Mortgage Advisor

Updated: March 15, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

March 15, 2024

We explain what subprime mortgages are, which lenders offer them and how a specialist mortgage broker can help boost your chances of successfully applying for one.

What is a subprime mortgage?

This is a type of mortgage for anyone who currently has a bad credit history and/or poor overall credit risk profile which means they’re unable to pass mainstream lenders’ standard eligibility criteria.

Some of the circumstances where applying for a subprime mortgage is the best option for you include:

  • Defaulting on mortgage payments in the past
  • Previous bankruptcy or repossession
  • Not being registered on the electoral roll
  • Currently having no substantial credit record

Whatever the reasons, subprime mortgages could be a possible solution. The application process can be more in-depth, so working with an experienced bad credit mortgage broker in this area is crucial to ensure you understand what is involved and what you need to do to get one.

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Typical interest rates

Rates for subprime mortgages tend to be less competitive. That’s because they are available to applicants who are deemed higher risk by a lender.

To offset this, financiers will charge higher interest rates and will likely expect you to put down a bigger deposit. The table below provides a snapshot of some of the typical rates available:

Lender Product Details
Frosted Rates Image

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Last updated May 2024

Please note that the above rates were accurate at the time of writing but are always subject to change. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

How to get a subprime mortgage

Applying for a subprime mortgage is a similar process to a standard mortgage, with a few additional complexities. As a result, its advisable to speak to a mortgage broker who specialises in securing finance for customers who have had credit issues in the past.

You can get matched quickly to an experienced broker by making an enquiry online. They’ll be able to help with:

  • Downloading and optimising your credit reports – your broker will assist with any corrections or amendments required
  • Using their market knowledge and existing relationships to find the right lenders with the best interest rates for borrowers who have had credit issues in the past
  • Preparing all the necessary documentary evidence required for this type of mortgage application, including details about any previous credit issues or changes in your circumstances

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How you can increase your chances of securing a subprime mortgage

There are a number of steps you can take before submitting your application which would improve your chances of securing the mortgage you need. Examples include:

  • Saving up as much deposit as you can – the higher deposit (anywhere above 25% would be considered a healthy amount) then the more lenders will be willing to consider your application
  • Applying on a joint basis – with a partner or family member, for example, where the other applicant(s) have a stronger credit record
  • Optimising and monitoring your credit reports – doing this well in advance of applying, you’ll repair previous damage incurred on your record
  • Using the help of an experienced mortgage broker – they will be able to use their extensive market knowledge to help identify the right lenders for these types of mortgages, saving you time and, potentially, some money too

Advantages and disadvantages of a subprime mortgage

There are a number of pros and cons to these types of mortgages, which your broker will be able to outline and discuss with you in more detail. In summary, these will include:

Advantages

  • Provides an opportunity to step back onto the property ladder where previously you may have felt this wasn’t possible
  • Allows you to rebuild your credit record as long as you keep up with your monthly repayments
  • Flexibility to take out other forms of credit, at lower rates, as your credit history improves

Disadvantages

  • Subprime mortgages tend to come with higher interest rates, meaning your monthly repayments will be higher than for standard mortgages
  • The amount of deposit required is also typically higher (usually at least 20%)
  • The overall costs incurred could be higher due to a smaller pool of mortgage lenders offering them

Which lenders offer them?

Different lenders offer subprime mortgages in different forms. There is no one-size-fits-all loan of this type. Instead, the type of bad credit issue you’ve had, when it happened, and for how much, will determine what financing is open to you.

For example:

  • If you have previous unsatisfied defaults, Metro Bank will lend to you so long as it is not over £1,000 and is across no more than two payments.
  • The Mortgage Lender will accept you if you’ve previously been bankrupt, so as long as you have been discharged for more than a year and have maintained a clean credit report.
  • Buckinghamshire Building Society will potentially accept applicants with satisfied CCJs but Clydesdale Bank will not.

What these examples tell us is that different lenders are open to different scenarios and each have their own set of limitations for adverse mortgage applicants. However, approaching one of these lenders directly is not recommended as using a mortgage broker will open up an entire market to you and boost your chances of securing the loan you need.

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What’s the eligibility criteria?

Lenders will be looking closely at whether or not you will realistically be able to afford to pay the loan back and that any historical financial issues are firmly behind you. As well as all of the usual eligibility criteria involved with a standard mortgage, they will also want to see:

Type of credit issue

This will be a pretty key aspect of whether your application will be successful. Along with wanting full details regarding the type of bad credit issue(s) you’ve had, your prospective mortgage lender will also want to know when – and why – it happened, the amounts involved and whether this has now been repaid.

Deposit size

This will depend on your individual case and the severity of your credit issues, but a lender will want you to have a deposit somewhere in the region of 20-30% (so a 70-80% loan-to-value ratio).

Employment status and salary

Lenders will more likely be satisfied with a borrower who has a steady, long-term and well-established job. Other more complex situations – such as self-employed income – will likely be more heavily scrutinised and require evidence of earnings over a period of at least three years.

Financial history

Exactly why you’re applying for this type of mortgage instead of a standard one will be investigated in order for a mortgage offer to take place. Lenders will want to know the extent of any debts, bad credit, no credit, payday loans, repossessions, CCJs, defaults or IVAs.

Can you get a subprime commercial mortgage?

A commercial mortgage with bad credit is not completely off limits, although it can be tough to secure. Like a residential mortgage, it will completely depend on your circumstances – how much you want to borrow, what kind of credit blips have occurred and to what degree, how much deposit you have to put down. However, it’s worth noting it’s not impossible.

Why use Online Mortgage Advisor?

When you have your heart set on a new home and there are bigger-than-average stumbling blocks along the way, it can be disheartening and frustrating. Working with an understanding and capable professional will make that process so much easier and far more likely to have a successful outcome.

The bad credit mortgage brokers we work with specialise in such scenarios, as well as being experienced, reliable and five-star rated. We can match you with the ideal professional straight away so you can begin your journey. Give us a call now on 0808 189 2301 or make an enquiry online.

Maximise your chance of mortgage approval with a specialist in subprime mortgages

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FAQs

Yes, of course. The best way to identify those mortgage lenders who offer them is to work with a specialist advisor who has experience in this area of lending – this will save you the time and effort of searching on your own and applying without the correct documentation and documentary evidence.

Yes, you will find Scottish lenders in Scotland and national ones too, including the Scottish Building Society, Clydesdale Bank and Royal Bank of Scotland. They will all accept bad credit mortgages in Scotland to some degree.

Yes, possibly. Whether you’re a first-time buyer or not, applying successfully for a subprime mortgage will be predominantly based on the type, and severity, of the issues you’ve had in the past.

This is why speaking to an experienced mortgage broker in the first instance is the best way forward – they will be able to assess your current situation and chances of success.

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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 Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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