• Adverse Credit and Mortgages

    unregulated been a lot of talk in the press about homeowners applying for mortgages with “[tags[adverse credit[/tags]”.  The popular press tends to concentrate on the problems this causes for for the applicant, but the issue of adverse credit applications creates problems for brokers and lenders too.

    The headlines have been caused by the recent problems in the US non-conforming market.  The finance industry regards any application with adverse credit as “non-conforming” and in the the US lenders have been granting mortgages to people who subsequently were unable to meet their repayments.  With disastrous consequences for some of the major lenders.

    With rising interest rates the same problem could easily arise in the UK market, and this is obviously causing concern to lenders and the industry regulators.  The Financial Services Authority (FSA) is watching the sub-prime market carefully.  Sub prime is yet another piece of jargon for adverse credit.

    The result of all this is that the FSA are keeping a close eye on the activities of sub-prime lenders and brokers, but it could be argued that the only long term solution to debt problems is the education of borrowers.

    How Common is Adverse Credit

    There have been plenty of horror stories in the press about rising levels of debt and its consequences, but just how bad is the situation? In the first quarter of 2007 there were (according to the insolvency service) 30,075 insolvencies recorded in England and Wales, roughly a 50% increase on the same period last year.  By the end of April 2007 the total personal debt in the UK was £1,325 billion.

    The most worrying statistic is probably the levels of secured debt.  Amazingly there is £1,112 billion secured against homes in the UK, this includes first charges (mortgages) and second charges (secured loans).

    With the recent interest rate rises starting to bite there is inevitably going to be an increase in the number of missed payments and this would add to an already increasing number.  For example, recent figures show that around 75,000 payments are missed every month.

    Lenders are well aware of the difficulties faces by adverse borrowers, and they are also aware that when someone with adverse credit applies for a mortgage there is (statistically) a good chance the borrower will experience problems in the future.  The FSA has made it clear that it expects lenders to treat borrowers who experience financial difficulties fairly.

    To cope with the increasing numbers of missed payments lenders have special departments to look after arrears and missed payments.  The main function of these departments is to try and help the borrower bank on track by arranging payment plans.  However with so many missed payments each month, there will inevitably be some lenders who fall short of the standards expected by the FSA.  The most aggressive tactics are likely to be employed by the un-regulated sectors i.e. buy to let lenders and commercial lenders.

    Whatever your circumstances the advice from all the debt counseling services is clear,  talk to your creditors and seek help as soon as you realise there is a problem.