More and more people today are experiencing problems resulting from having had financial difficulties in the past. It can be surprisingly easy to be given a bad credit rating which can affect the ability to borrow money far into the future. This is where bad credit mortgages come in.
Many people can then have problems getting a mortgage or a re-mortgage, often regardless of their current financial situation. Some lenders may automatically reject an application from someone with a poor credit rating. The rejection itself may then in turn be recorded as part of the credit rating which can then make it even more difficult to secure a loan or a mortgage.
However, mortgages and re-mortgages are available for those with credit problems, IVAs, CCJs and past or current bankruptcy; but it is a good idea to approach a specialist mortgage provider to avoid damaging a credit rating any further. Our mortgage advisers are experienced in dealing with providers who are sympathetic in this situation and can offer a fair deal, rather than take advantage of the fact that options may be limited.
Mortgages and IVAs
An Individual Voluntary Arrangement, also known as an IVA, is an agreement between the homeowner and their creditors.
Sometimes a preferable alternative to declaring bankruptcy, this often involves making one monthly payment out from income for a specific period of time, usually 60 months.
An IVA can sometimes be confused with a debt management programme which basically involves a specialist company liaising with the creditors on the customer’s behalf. An IVA however involves obtaining court protection.
An IVA is arranged to help pay off debts in a way that is affordable to the debtor, who is closely involved in calculating the monthly repayment. This will mean that assets, liabilities, income and cost of living need to be considered. The amount payable to creditors is determined by the amount which the customer can afford to pay after the normal cost of living expenses have been deducted. This ensures that homeowners will not get into more debt.
An IVA proposal is prepared by a licensed Insolvency Practitioner (IP). The debtor is then sent a copy of the proposed agreement for approval. Further alterations can be negotiated at this stage. The IP will then present it to the creditors. Once the proposal is approved the debtor will take it to their local County Court to have it registered. A copy of the proposal is sent to each creditor. Creditors vote to accept or reject the proposal but with the debtors consent they can add their own modifications.
When an IVA is accepted, the IP monitors progress, ensuring that the terms and conditions are adhered to. They make sure that the payments are distributed to all creditors on a pro-rata basis. In some cases the debtor may not have actually paid off all of their debts by the end of the IVA so sometimes the outstanding balances are written off. The debtor is considered free and can make a new financial start.
If the debtor has an endowment policy linked to their mortgage, then they may have to cash it in to use the proceeds to pay the creditors or equity in the property may have to be released and their credit history will reflect the IVA.
However, mortgages and re-mortgages are available for those who have had credit problems. It is therefore a good idea to approach a specialist mortgage provider to avoid damaging a credit rating any further. Our mortgage advisers are experienced in finding the right mortgage for anyone who has problems recently or in the past or who has wrongly been given a bad credit rating.
Mortgages Following Business Bankruptcy
How business bankruptcy can affect personal credit ratings and personal assets depends on how the company has been set up and whether there are personal guarantees and how liabilities may be secured.
Bankruptcy does enable the debtor to make a fresh start once the bankruptcy has been discharged however there are restrictions while the order is force and the fact that has been a past bankruptcy will always remain on record.
Declaring bankruptcy is often a last resort when all other possibilities have been ruled out however the options and the processes vary depending on whether the business is a limited company, a partnership, or is run by a sole trader. The long term effects could be significant on a personal level as well as from the point of view of the business and setting up companies in the future, so it is always a good idea to seek professional advice at the earliest opportunity to make sure all options have been fully explored.
For those who have experienced a business bankruptcy in the past, applying for a mortgage can be difficult and frustrating. Some lenders may try to take advantage of applicants in this situation as they know that the loan options are limited. Sometimes these lenders will charge high fees, extensive pre-payment penalties on the home or ask for a fee upfront to "process" the loan.
However, fair deals on mortgages and re-mortgages are available for individuals with a history of credit problems or bankruptcies and our specialist mortgage advisers are experienced in finding the right mortgage for anyone in this situation.
Mortgages and County Court Judgements (CCJ)
If payment of a debt is not forthcoming, a creditor may make a claim under the Consumer Credit Act 1974 through the county court.
This is a civil court so a County Court Summons or County Court Judgement (CCJ) will not result in a criminal record but it will be recorded by the central credit ratings agencies Equifax and Experian who will hold this information to be made available to lenders for credit checks in the future.
The majority of these matters will be sorted out on paper by court staff rather than at a court hearing. When the judgment has been made, details of the amount owed and the rate at which repayments must be made are sent to the debtor. It is possible to request for a reduction in repayments if it will be difficult to maintain.
The result of this can then lead to a bad credit rating which can cause difficulties far into the future when it comes to trying to arrange a mortgage or to get a better deal by re-mortgaging.
Some mainstream mortgage lenders turning down borrowers with a poor credit history which in turn can then adversely affect the credit rating still further. There are also a number of less well-intentioned companies providing mortgages to those who have past CCJs who will sometimes charge very high fees, extensive pre-payment penalties on the home, or ask for upfront fees to "process" the loan. These lenders may try to take advantage of borrowers with credit card debts or missed loan repayments because they know that the loan options are limited.
Credit Card, Loans or HP Debt and Default
Taking out a loan today or getting a credit card is easier than ever however keeping up with repayments can much more difficult.
Taking advantage of the interest free period that a credit card provides is great as long as it is managed sensibly and all or most of the balances paid off each month however, the interest rates charged by most credit card companies are very high and a comparatively small outstanding balance can quite easily become a large financial burden.
Loan interest rates vary enormously and before signing up for any loan, it is always a good idea to look at the total amount that will be paid over the term and what the small print says regarding non-payment if there were to be any difficulties later on.
Many people do experience problems with meeting credit card debts or loan repayments and this can easily lead to a bad credit rating which can cause difficulties far into the future when it comes to trying to arrange a mortgage or to get a better deal by re-mortgaging.
Many mainstream mortgage lenders turning down borrowers with a bad credit history which in turn can then adversely affect the credit rating still further. There are also a number of less well-intentioned companies providing mortgages to those who have current or previous credit issues who will sometimes charge very high fees, extensive pre-payment penalties on the home, or ask for upfront fees to "process" the loan.
Mortgage Arrears and Missed Payments
Most homeowners make mortgage repayments their highest financial priority. However mortgages can end up unintentionally in arrears for a number of reasons including divorce, unemployment or illness.
The situation can then sometimes go unnoticed as lenders are less likely to make contact quickly about missed or late payments as their debt is secured against property.
For some, unsecured debts and outstanding credit card payments may take priority over mortgage repayments.
Penalty fees are sometimes charged when payments are missed. When mortgage customers experience difficulties in meeting contractual mortgage obligations, lenders have a code of conduct to follow. They may sometimes arrange a mortgage repayment proposal, called an arrangement to pay. A customer may need to produce a detailed statement of income, outgoings and debts. They may need to explain any plans to increase income or reduce spending as well as discuss how any new mortgage arrangements will affect future payments.
Mortgage payment protection insurance can help prevent the situation arising and more and more people are arranging this when they first take out a mortgage. Repayments are then covered in the event of redundancy, sickness or accident. Insurances may have a qualifying period before they start paying out and there may be constraints on how long they are paid for.
Without insurance however, mortgage arrears can lead to the property being repossessed in the worst case scenario. This does not automatically happen but if threatened with action, advice must immediately be sought. For many more people though, the result of having temporary financial difficulties can be that they are given a bad credit rating which can affect their ability to borrow money far into the future. This can mean having problems getting a mortgage or a re-mortgage, often regardless of their current financial situation. Some lenders may automatically reject an application to borrow money from someone with a poor credit rating. The rejection itself may then in turn be recorded as part of the credit rating which can then make it even more difficult to secure a loan or a mortgage.
However, fair deals on mortgages and re-mortgages are available for those with a history of credit problems but it is a good idea to approach a specialist mortgage provider to avoid damaging a credit rating any further.
Mortgages Following Personal Bankruptcy
Personal bankruptcy can be declared when it is not possible to stay in control of personal debt. It is often a last resort when all other options have been ruled out and it involves the assets and possessions (with some exceptions) of the debtor being converted into cash where possible.
They become property of the Official Receiver in Bankruptcy who is then legally responsible for using the money to pay off any creditors as far as possible.
Bankruptcy does enable the debtor to make a fresh start once the bankruptcy has been discharged but there are restrictions while the order is force and the fact that has been a past bankruptcy will always remain on record.
A property owned by a bankrupt will probably have to be sold and this could be enforced by a Court Order. However, if it is owned in joint names, their partner could offer to buy the bankrupt’s share of the property from the Official Receiver. If there is a partner or dependents living in the property, twelve months’ grace will be allowed for alternative accommodation to be arranged.
It could be easy for some lenders to take advantage of borrowers with past bankruptcies because they know that the loan options are limited. Sometimes these lenders will charge high fees, extensive pre-payment penalties on the home or ask for a fee upfront to "process" the loan.
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