New mortgages for buyers with poor credit scores launched by Metro Bank
METRO Bank has launched two new mortgage deals for buyers with poor credit scores.
The lender will give home loans to borrowers with an imperfect credit history as long as they put down at least a 20% deposit.
The two and five-year fixed-rate deals are open to applicants who’ve defaulted on previous credit payments, such as missing a credit card payment, up to twice in the past two years.
It will also consider lending to people who have had a County Court Judgement (CCJ) against their name, even if they haven’t repaid it yet.
Lenders take into account your credit history when considering whether to give you a loan or credit.
Only the best rates are given to borrowers with top credit ratings, while those with the worst rates may be rejected altogether, affecting any future borrowing applications.
How to improve your credit score
WE explain how to improve your credit score.
- Don’t make too many credit applications – Making lots of requests in a short period of time can be seen as a sign of financial distress – and each application will be recorded on your file. Use a “soft-search” eligibility calculator to show how likely you are to be accepted.
- Always pay your bills – Late payments are also recorded in your file so make sure you pay your monthly bills on time including utility and credit cards.
- Pay down your debt – Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already have a large amount of debt.
- Use a credit-builder credit card – These cards tend to have high interest rates compared to normal cards but if you can show you’re a responsible spender with them, it can improve your chances in the eyes of lenders.
Despite there being up to 14million people in the UK with a poor credit score, according to PWC, high street lenders refuse to lend to them.
Instead, borrowers must rely on specialist lenders who offer what’s called near prime mortgages to approve them for credit, until now.
Near prime is when borrowers are considered to have mildly negative credit scores, unlike sub prime which refers to those who have bad credit histories.
Near prime loans are considered to be controversial because the affordability for borrowers to be able to make the repayments is less.
In general, high street lenders refuse to lend to near prime borrowers due to the high risk.
The high street lender’s deals are open to first-time buyers and homeowners looking to re-mortgage.
But it’s worth noting, the deals are more expensive than those for buyers with a good credit rating.
Metro Bank charges a rate of between 3.79% and 4.19%, compared to similar deals for those with a better score which start at 1.74%.
In terms of monthly payments, someone paying a rate of 4.19% can expect to pay £1,077 while a borrower on a rate of 1.74% will pay £822, based on a £200,000 mortgage over 25 years.
Borrowers can actually get a cheaper rate on a similar specialist mortgage elsewhere if they shop around.
For example, we found The Mansfield Building Society charges 3.39% for its two-year fixed specialist deal for borrowers with poor credit scores.
This would make the monthly payments around £989.
“While it’s great to see more products and more choice for house buyers entering this part of the market, Metro Bank’s new product is competitive but is not currently the best rate available, so make sure you compare before choosing,” said James Andrews, personal finance expert at comparison site money.co.uk.
“Mortgage products for those with bad credit will not necessarily be the best deal to be tied into.
“If you can work towards improving your credit before taking out a mortgage, the rates could be much better and save you a fortune.”
The deals are capped at £500,000 and you’ll need to be aged 80 or younger to be approved.
You can also apply for the mortgage with up to three other people.
Don’t assume you’ll be automatically issued the loan though because there is other criteria you need to meet before getting the mortgage.
If you’ve settled a CCJ in the past three years, there’s a limit of £1,000 on the amount of debt you owed.
Those with CCJ’s that are yet to be repaid mustn’t exceed more than £500 and the defaulted payments are capped at £1,000.
Plus, the lender will only consider people who’ve taken out a debt management plan if they’ve repaid it over a year ago, and you can’t be in arrears on your utility bills of more than £1,000.
However, if you owe cash to a payday lenders then you won’t be accepted.
Those hoping to improve their credit score before applying for a mortgage should check out our guide to boosting your chances of getting accepted.
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