Not every borrower will fit the profile of a traditional high street bank, but a failed credit score doesn’t mean that your client can’t get a mortgage. Lenders, like Pepper Money, are increasingly offering mortgages for clients who have failed a credit score at rates that are not much more than those offered by high street lenders.
Credit scoring is an automated process so it doesn’t look at an individual’s circumstances in full. Debt and missed payments aren’t the only reasons why a client can fail a credit score.
For example, credit score fails could occur if your client has:
- Access to too much credit, or has not taken enough credit in the past to establish a robust history
- A higher debt to income ratio than expected
- Issues with linked addresses, or frequent change of address
- Previously taken a payday loan, often as a result of being incorrectly advised that this would help to build their credit score
- Been the victim of fraud
- Been in their current role for a short period of time or has had too many jobs
- Mis-keyed information within the application. Date of birth is a frequent source of this problem.
In situations like these, mortgage decisions will need to be made by experienced underwriters, who look at each case on its merits rather than base it upon a credit score. That’s where specialist lenders come in.
A failed credit score no longer has to mean a significantly more expensive mortgage. Pepper Money recently launched its lowest ever rates, with a 2-year fixed rate on Pepper 48, for clients who haven’t had a CCJ or default in the last 48 months. This is available for 2.17% up to 65% LTV.
It’s a little more expensive than some of the leading high street 2-year fixed rates at this LTV, but less than what many expect, and the difference can be even more palatable when comparing monthly payments.
The table below shows the lowest 65% LTV 2-year fixed rates for five different lenders. It also shows how much the monthly payment for each of these lenders will be based on a £150,000 mortgage over a 25-year term.
In this instance, the cost difference between Pepper Money and the most expensive high street lender is just £32 a month. This could be the cost of a takeaway, or the difference between your client with a failed credit score being able to buy their dream home.
(Data correct as of 20 September 2018)
Products correct on 23/08/18