Non-conforming borrowers
Most UK lenders use credit scoring to decide whether or not to offer you a mortgage.
Your score is based on your previous borrowing and credit arrangements, such as loans, credit cards and hire purchase agreements, and it provides the lender with a detailed snapshot of how responsibly you have managed this debt.
If you have ever had repayment problems, such as late payments or loans arrears, this will be reflected in a lower credit score, as will more serious issues like bankruptcy or county court judgements (CCJ).
In fact, the bigger the problem, the lower your credit score is likely to be.
As the majority of the big high-street banks and building societies now use automatic credit scoring when you apply for a mortgage, if your score does not meet their lending criteria – in other words if you are deemed too high a risk – the lender can turn you down.
Your options
If this happens then you might have to seek out what is known as a non-conforming mortgage.
These home loans were originally developed for people with quite serious debt problems, for example, those who had failed to pay several instalments on a previous mortgage.
As a result, the borrower is seen as a bigger risk by the lender, so non-conforming mortgages tend to have higher interest rates than standard loans and usually have higher charges and stricter conditions attached to them.
These mortgages are offered by specialist lenders and more recently by mainstream lenders.
Lenders have realised that if they can help borrowers through a difficult financial period, those customers are more likely to stay with them after their credit problems have been sorted out.
Now the non-conforming sector is one of the most competitive and innovative parts of the mortgage market.
Increased competition has made rates keener so borrowers no longer have to pay through the nose and can shop around to find the best deal.
Find the best mortgage for you here
Date: 1st, April, 2006
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