Prime and Sub Prime Mortgages
A
prime, mainstream or standard mortgage is one
for which a borrower would need to have a good credit
rating and certain circumstances to be eligible.
If you are in regular employment and have always repaid your debts
on time – for example, personal loan or credit card payments –
and do not have any county court judgments against your name then
you should be eligible for a prime rate mortgage and have access
to the best mortgage deals on the market.
If you have a poor
credit history due to defaulting on loan or credit card payments
or even just paying a phone or utility bill late, then you will
be classified as a “sub-prime” borrower.
Sub-prime mortgages or bad
credit mortgages come with higher rates than prime mortgage
deals as there is a higher risk of the borrower defaulting.
The
more "suspect" your past credit record, the more sub-prime
you will be considered to be by the mortgage lenders, and the
higher the rate you will pay.
If
you have ever had an individual voluntary agreement (IVA) or been
declared bankrupt then a sub-prime mortgage will be your only
option if you want to be a homeowner.
Once
you have proved you can manage your finances better and have made
payments on time, there may be the option to migrate to a prime
or “near-prime” mortgage deal.
The sub prime mortgage crisis
This
emerged in the USA during 2006 and 2007 after mortgage lenders
relaxed previously stringent lending rules so that "sub prime"
applicants were accepted for mortgage loans.
Everyone
made money from the resulting commission payments. The mortgage
brokers, the directors and shareholders of the mortgage lenders.
The
problems started when some of the unfortunate borrowers could
not meet their regular monthly mortgage payments - usually after
the initial special "headline
interest rates" had come to an end.
The
reason this affected the economy was that these sub prime loans
were effectively worthless becuse they had been secured on properties
which were either unsellable or worth much less than had been
supposed.
The
problem was the loans had been accepted as "secured"
and mixed up into various clever financial lending instruments
- that came with many fancy sounding names - which the banks traded
amongst themselves.
Unfortunately neither the lending instruments nor the banks were
quite as clever as had been assumed. It became very difficult
for the banks to know what their position was. How many cookies
did they really have in their cookie jar? They weren't sure. This
rattled confidence in the dominant capitalist financial system
all over the world
It
was OK though because of the few amazingly impressive suits who
ran the banks, only a few got fired. And their pay offs usually
amounted to tens if not hundreds of millions of dollars.
The
poor borrowers who lost their homes by the thousand? Ah... that's
another story.
Never
trust a person in a suit, exuding "trust me, I'm a suit",
offering something which seems too good to be true.
It
always is...
To
read more on this subject please see the list below
or your mortgage
guide or your home
buying guide
Read
enough? Just want a quote? To get
your best mortgage quote quickly and easily we can
put you in contact with a recommended mortgage adviser. It's free,
completely confidential and there's no obligation at all. Simply
fill out the form below
Read
On / Mortgage Basics
What
is a mortgage?
A basic summary of the
rules
The
choices you need to make
How much can
you borrow?
How do you prove
your income?
How long are mortgages
usually for?
What
will happen to interest rates?
Read
On / Mortgage Guide
Costs
of a UK Mortgage
Your Mortgage
TOP TIPS
Calculators
A
to Z all UK Mortgage Types
Read
On
Guide
to Buying Home in the UK
Guide
to UK Home and Mortgage Insurance
Life
Insurance Guide
Glossary
of UK Mortgage Terms
Mortgage
News
Click
here to see your Latest Best Buy Mortgages
Important note about your credit rating
Many
websites don't make it clear that filling in their mortgage
enquiry form means you might be credit checked.
This
can put you at risk.
UK
Mortgage lenders may assume an enquiry you have aleady
made to another lender means you were turned down - and
not that you are in fact carefully shopping around and
rejecting the bad deals.
The
best way around this significant problem is to ask an
independent mortgage adviser to make
anonymous enquiries for you.
Without
risking your credit score an adviser can find you the
best available mortgage deal. They will also know how
likely you are to be accepted by the lender if you decide
to make a formal application.
If
you would like a recommended adviser to check out the
best deals for you, anonymously, simply fill in the quick
form below.
"
Hmm..." You might think; "Won't I be
hounded by a salesman hungry for my business? "
This
is the most common question we hear from our users.
The
answer is no you won't.
Firstly
your enquiry is only passed to ONE person on a carefully
vetted list of independent advisers.
Secondly,
these mortgage advisers are professionals. Even
when the market is slow they are busy
people. There many people who need to move homes, or get
a remortgage and are looking for advice all the time.
Regardless of the state of the property market, life goes
on.
So the advisers don't have time to hassle people. It just
doesn't work like that. No one is gong to be forced into
taking out a mortgage unless they really need one.
The
advisers are very used to talking with people, perhaps
like yourself, who are only "dipping their toes"
into the water.
Many
people just want an initial quick chat and if they feel
comfortable will ask the advisor to contact them again
later - often in several weeks or months. As a professional,
the adviser will simply diarise this and call back at
the appropriate time. There is no obligation at all.
(In
the unlikely event that you ever feel at all "hassled"
by someone on our list please let us know immediately.
We have never heard of this. But if it happened we would
definitely want to know).
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"Thank
you... the form was very quick. After many long
phone calls to various lenders - where I'd go
over the same details again and again - I was
amazed at how easy you made it. You've saved
me £1000's...."
Peter
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