The Benefits of a Bad Credit Mortgage Deal
Renting a House vs. Buying a House with an Adverse Credit Rating
Mar 3, 2009
A bad credit rating affects the financial lives of millions of people. Anyone who has missed or made late payments on a credit agreement in the past six years will have adverse credit. This may make home financing difficult to obtain, especially for a first-timer buyer with a minimal house deposit. Those who can get a mortgage will face higher monthly repayments on even the best bad credit mortgage deal.
What is a Bad Credit Mortgage?
A bad credit mortgage deal was designed to make buying a house possible for first-time buyers with adverse credit. There are also millions of people that wouldn't be able to get a remortgage because of a bad credit rating. It is believed that as many as 25% of people would be turned down for a standard mortgage. Without bad credit mortgage deals, renting a house would be the only option.
What are the Benefits of a Bad Credit Mortgage Deal?
- First rung of the property ladder. Without access to bad credit mortgage deals, many first-time buyers wouldn't be able to get on the property ladder. This would mean that renting a house is the only option for a minimum of six years when bad credit no longer shows on personal credit reports;
- Long term capital growth. According to Land Registry figures available since 1975, properties have doubled in value every seven years. Renting a house would mean that the only beneficiary from substantial long term capital growth is the landlord;
- Greater personal freedom. Renting a house means that a tenant has limitations imposed in terms of what can be done. This means that keeping family pets and performing home improvements isn't always possible. Buying a house with the assistance of a bad credit mortgage deal provides greater personal freedom;
- Credit repair. Whilst a bad credit mortgage will mean that monthly mortgage repayments are higher than renting a house, this will change after 3 years. Provided that repayments are made punctually, this can help repair credit and eventually get someone a standard mortgage deal;
- Different mortgage deals. Whilst there aren't as many bad credit mortgage deals, there are still an excellent selection. This enables a first-time buyer to decide whether they want an interest-only mortgage or repayment mortgage. Individuals with adverse credit can also decide whether they want a tracker, fixed-rate or discounted mortgage.
A bad credit mortgage allows many first-time buyers with a sufficient house deposit to get on the property ladder. It may mean slightly higher mortgage repayments for a few years, but it will ultimately help to repair a credit rating. It also allows a first-time buyer to benefit from long term capital growth.
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