Bad Credit Mortgage Deals - Pros and Cons
Using a Mortgage Broker to Minimise Monthly Repayments
Mar 2, 2009
Consumers that have either missed or made late repayments on credit agreements will have an adverse credit rating. First-time buyers seeking to get on the property ladder will only be able to choose from a range of bad credit mortgage deals charging higher interest. However, it is possible to utilise the services of a mortgage broker to trawl the market for the best mortgage deals.
Advantages of a Bad Credit Mortgage Deal
- Capital appreciation. According to Land Registry figures available since 1975, properties have doubled in value every seven years. Renting a house represents dead money as the only person benefiting is the landlord;
- Mortgage brokers. The assistance of a mortgage broker means that the best bad credit mortgage deals can quickly be identified. This will help to minimise monthly repayments for first-time buyers;
- Home improvements. Renting a house negates any benefit from performing home improvements. Buying a house with a bad credit mortgage deal affords a first-time buyer greater personal freedom to make changes to the family home;
- Credit repair. Whilst a bad credit mortgage will means higher monthly repayments for several years, any adverse credit ends after 6 years. A clean credit report will mean that the best mortgage deals will then be available. It is likely that someone's credit rating will improve after three years of punctual monthly repayments.
Disadvantages of a Bad Credit Mortgage Deal
- Higher monthly repayments. Bad credit mortgage deals are more expensive. This will mean higher monthly repayments and may even make it more costly than renting a house;
- Higher house deposit. First-time buyers seeking to buy a house with adverse credit will find that a higher house deposit is often necessary. The higher likelihood of negative equity means that a house deposit of at least 25% is needed to get a bad credit mortgage deal;
- House repossession. Falling greater than 3 months behind with mortgage repayments is likely to lead to creditor harassment if a satisfactory resolution cannot be reached;
- State assistance. Those renting a house are given more state help. Government assistance with monthly repayments on a bad credit mortgage deal is minimal;
- Negative equity. In a declining market, a bad credit mortgage and all the associated fees will means that first-time buyers are likely to face negative equity problem for several years.
Whilst a bad credit mortgage deal is more expensive than certain mainstream products, it remains better than renting a house. Making the mortgage repayments will help improve a personal credit rating and all borrowers with adverse credit will benefit from a fresh start after 6 years. The services of a mortgage broker can be utilised to trawl the market in order to identify the best bad credit mortgage deal.
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