Bad-credit mortgages to expand

Thursday, 16 November 2006 12:00

Bad credit mortgages are set to become more popular, the Council of Mortgage Lenders (CML) has said.

Bad credit mortgages allow people who are rejected by major lenders because of a poor borrowing history - such as missed payments, county court judgements against, or past bankruptcies - to secure a mortgage.

These loans are more expensive than standard mortgages, but the CML has said they expect the market to grow.

"The likelihood is that the demand for adverse credit products including mortgages will continue to expand strongly, especially over the next few years, given evidence that a growing number of households are struggling with their finances and this may be exacerbated by increases in short-term interest rates," said Bob Pannell, head of research and information at the CML.

"At any point in time there is a substantial minority of individuals who cannot access mainstream financial products.

"The provision of adverse credit products helps such individuals get into or sustain home-ownership and in many cases gives borrowers an opportunity to re-order their finances.

"We believe that this market, although higher risk, plays an important part in rehabilitating many individuals who encounter short-term financial difficulties."

However there were also warnings over bad credit mortgages, especially in the current climate of rising interest rates.

Milan Khatri, chief economist at the Royal Institution of Chartered Surveyors (Rics), said: "Households with 'adverse credit' mortgages are likely to find higher interest rates more difficult to cope with, though this form of borrowing in many cases has provided a lifeline in difficult circumstances such as divorce or job loss.

"Additional interest rate rises will see consumers experiencing difficulty servicing consumer credit debt."

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