Complex Circumstances

These are your mortgage enquiries that fall outside the standard high street lending criteria. For simplicity, complex circumstances fall into two main categories:

  1. Those with good credit but with complex circumstances.
  2. Those with adverse credit.

Anyone with good credit but with complex circumstances

Typically, this is someone that has a good credit history and can demonstrate their income coupled with a good deposit (equity). However, they just fall outside the standard lender’s criteria and as a result find themselves frustrated at not being able to obtain a mortgage.

For example:

  • Someone with complex income arrangements, i.e., solely investment income (from stocks and shares)
  • Someone looking for an interest only mortgage at 75% LTV
  • A mortgage beyond normal retirement age
  • Mortgages for over 65s
  • UK national with UK income and foreign income
  • Someone on a zero hour contract
  • High net worth clients with complex income arrangements
  • Someone buying a non standard property
  • A British diplomat looking to buy a property in the UK
  • Large Loans (from £1.5m)
  • Anyone with a very minor adverse event registered against them incorrectly (victim of identity fraud)

 

 

If you fall into any of these quirky categories, then you should work with an experienced whole of market mortgage broker. These types of cases invariably involve your mortgage broker discussing your case directly with an underwriter or business development manager at a bank that they believe offers the best chance of you securing a mortgage.

An underwriter is the person at the bank that assesses your eligibility for a mortgage and decides whether you’re going to be a risky borrower. Once the underwriter has given the thumbs up to doing the deal, then the case can be formally submitted to the lender.

Some niche lenders operate a system where your case is initially assessed by an underwriter, and if they feel it has potential, it’s referred to their Credit Committee (senior group of bankers with more experience) for further assessment and analysis. Once it’s sanctioned by Credit, you’ve got a solid mortgage agreement in principle. The remaining part is just to sign the application forms, submit the accompanied documents, and get the valuation instructed. Subject to all being satisfactory, you’ll receive your mortgage offer.

Because it’s a non standard deal, they may offer a bespoke rate to reflect the quirkiness of the case. Ok, it might be 50 basis points higher than expected, but at least you’ve managed to secure a mortgage from what was looking like an impossible situation. After two years, hopefully your situation would have improved or become standardized, allowing you to remortgage and access a wider choice of lenders.

The established mortgage firms have built up good relationships with niche lenders and underwriters and are able to get cases agreed that don’t quite fit the standard high street model. The lending ethos of some of these niche banks is to pick up business that the high street lenders decline. If the underwriter assesses your case and feels it’s outside their criteria, then it’s not the end of the world as your broker simply approaches another lender. The additional benefit of this approach is that no credit checks or footprints are left on your credit file, therefore your credit is not impaired in the process.

Those with adverse credit

Two documents are required from the outset:

  1. Obtain a copy of your Experian and Equifax credit files and email it to your broker ASAP.
  2. A written explanation for the adverse credit will have to be provided: divorce, illness, bereavement, unemployment, fraud committed by a third party.

Unfortunately, if you have adverse credit, obtaining a mortgage will be difficult. The high street lenders receive so much business between them that they can cherry pick who they want to lend to. At the moment, their computer lending systems do not consider lending to adverse clients. Pre–2008, there were a number of subprime lenders that one could approach and they would happily give you a mortgage albeit on a higher rate, but post 2008, all these lenders have fallen by the wayside.

However, there are still mortgage options available, albeit limited. It goes without saying that you have to consult with an experienced independent mortgage broker who has access to all the niche lenders. There are some lenders that do not sell directly to members of the public and you can only access their products from a selected panel of mortgage broker firms. In fact, some of these lenders are incredibly niche in that they only allow their products to be sold by the large mortgage firms and mortgage networks.

It’s important that you understand the principles of Best Advice and Treating Customers Fairly when looking at adverse credit cases.

Option 1: High Street Lenders
Option 2: Challenger Banks
Option 3: Niche Lenders
Option 4: Niche Lenders that will consider adverse credit
BEST ADVICE & TREATING CUSTOMERS FAIRLY

 

The above table explains the process of how a broker sources a mortgage for a client. As mortgage brokers are regulated by the FCA, they are obligated at all times to offer the best advice to their clients and to secure the best mortgage option based on your circumstances. In addition, all regulatory firms must embrace a corporate ethos of putting their client’s well-being at the heart of their business activities (commonly referred to as Treating Customers Fairly or TCF).

 

Best advice and TCF underpins the whole mortgage advice process

How does this affect you as an adverse borrower? Even though you might have adverse credit, your mortgage broker is still duty bound to explore whether there is a remote possibility of securing a mortgage from a high street lender. I know it sounds contradictory because I have stated above that the high street lenders don’t do adverse; however, experienced brokers know that depending on the level of adverse, from the time when it’s registered and satisfied on your credit file and the loan to value, there is a slim chance that it might just get through with one of the high street lenders.

Therefore, as the table depicts, your broker will always start from the top of the table first and work their way down. If the high street lenders won’t touch you with a barge pole, then you move down to the challenger banks. They discuss your mortgage application with an underwriter or business development manager. There is normally an explanation for the adverse: divorce, unemployment, illness, etc. So long as there is a plausible explanation, the challenger banks may consider lending. There are some niche lenders that do not credit score but might consider a minor adverse so long as it’s been satisfied (paid) and a plausible explanation is provided. If the niche lenders are finding the deal too rich, then your brokers goes to the last chance lenders to see if they would consider lending.

Apologies in advance for the overused cliché: Every single mortgage application has to be treated on a case by case basis so you cannot just badge someone as adverse and automatically resign their fate to a small panel of niche lenders. If you have adverse credit, whilst it’s not wrong to think that your choices may be severely limited, also bear in mind that because of best advice and TCF, experienced brokers scour a wider market place (including the high street lenders) for possible mortgage solutions.

 

Adverse credit mortgage options

complex circumstances or adverse bad credit

For simplicity, I will define adverse as falling into three categories: Minor, Medium, and Heavy.

Minor Adverse: This could be a mobile phone default, late payment on a store card, or arrears showing on a utility provider. It’s typically a piddly amount and in the majority of cases, a clear anomaly when you look at the overall credit report. Everything else is well maintained and satisfactory barring the old blip on a mobile phone bill. Nonetheless, you approached one of the high street lenders and were declined for a mortgage.

So long as there is a plausible explanation for the default and it’s been satisfied, obtaining a mortgage should be reasonably straightforward.

It’s important that minor defaults are paid as soon as identified. You’re not helping yourself if you’re applying for a mortgage and there is a minor default showing on your credit file as not satisfied (paid). It’s incredibly difficult for a broker to go to bat for you and convince an underwriter to consider you for a mortgage with defaults still showing as unpaid. It’s a waste of everyone’s time.

The time the default was paid is also very important. For example, if there is a default of £99 registered in January 2012 and its showing as paid in June 2014, the typical follow up question by the underwriter is: When were you made aware of the default? If it shows the default was satisfied March of 2012, as in maybe you weren’t aware of it at the time but immediately you found out in March 2012, you paid it off. They are assessing your character and your responsibility towards financial commitments: Is this a genuine mistake, a one off blip that you were unaware of, or is there a pattern of financial mismanagement or completely blasé attitude about your financial affairs?

Options: Depending on the amount, type of adverse or default, when it was settled, and the loan to value coupled with a plausible explanation, your broker could potentially secure a mortgage with one of the high street lenders or challenger banks. Last resort: Niche lenders.

Medium Adverse: These are for defaults, county court judgements (CCJs), and/or historic late payments on credit agreements and mortgages. The amounts are generally higher when compared to low adverse. Typically, you’ve had a life challenging event which has caused financial difficulty: divorce, bereavement, or unemployment. Once again, the underwriter will need to know the cause of the adverse.

For example: You have a default registered in January of 2012 for £985 and a CCJ registered in February, 2012 for £2,200 but both are showing as satisfied in June of 2012. The reason for the adverse is maybe you had lost your job in December, 2011; however, you managed to find a job in May 2012, and as a result, you were able to pay off your commitments in June 2012.The underwriter will see that you were with your previous employer for two years (until December 2011) and you started your new job in May 2012 and everything else has been conducted satisfactorily since you gained employment, and your credit report tallies up with your explanation.

Unless it’s a case of stolen identity fraud, your credit report provides detailed analysis of your financial profile, behaviour, and circumstances. As a result of the constant review of credit reports, underwriters pick up an innate skill of discernment and they can tell if you are a responsible borrower and always manage your finances satisfactorily or you’re simply the opposite—financially irresponsible. If you appear to exhibit the latter profile, then it’s the kiss of death.

The good news and this is the crux of the matter: If the underwriter is of the opinion that you have had a challenging life event that resulted in adverse credit being registered against you, but you have turned the situation around and maintained a satisfactory credit profile going forward, then there is a propensity that they’ll consider lending. This is the current avenue for those with adverse credit. On the contrary, if it appears that you are simply poor at managing your finances and this is what has led to the adverse, then there is currently no appetite from any bank to lend to you. Unfortunately, this is where past performance is a prediction of future performance.

What about if it’s a low loan to value deal? For example, borrowing £100,000 on a property value of £385,000 (26% LTV). You might be thinking, there is loads of equity here, what’s the bank’s problem? If I don’t pay my mortgage, the bank will get their money back. Pre–2008, a low LTV on its own should be a deal clincher. Not anymore; it’s all about responsible lending to responsible borrowers.

24 months rule: Some lenders will consider lending, provided the defaults or CCJs were registered and satisfied more than 24 months ago. The same principle applies to mortgage arrears; so long as you’ve had 24 months satisfactory mortgage history, then there are lending options available. The amount of the default/CCJ and the creditor is also taken into consideration. Perhaps you’re reading this and thinking your credit is poor as a result of a historical life event or you simply failed at managing your finances responsibly, but the penny has now dropped and you decide to adopt a responsible approach to managing your finance. Once there is a clear 24 months’ hiatus from the last recorded adverse, then you significantly improve your chances of securing a mortgage. There are banks that want to see 36 months of good conduct. The bottom line is that you can plan ahead and get your finances on track. Yes, there is hope.

Options: Depending on the level of adverse, default or CCJ, when it was registered and settled, the loan to value and the reason behind it, your broker could still get you a mortgage with a high street bank, but your best option will be with one of the challenger banks or niche lenders.

Heavy adverse: Those with defaults, CCJs, mortgage arrears, debt management plans, IVA, discharged bankrupts. Generally, these are for large amounts and in some cases not settled or satisfied. The chances of getting a mortgage are incredibly difficult. But once again, it’s about the why. What was/is the reason for the adverse credit? If it’s clearly a case of being reckless and financial mismanagement, then let’s not waste each other’s time. There are no options available. And yes, even if it’s an incredibly low loan to value. It’s not going to happen.

However, if there is a plausible explanation and you managed to turn your life around and conducted your finances in satisfactory manner over the last 12 to 24 months (absolute minimum but the longer the better), then you can still obtain a mortgage. For example, if you have been discharged from bankruptcy four years ago, then some lenders will consider lending.

Options: Depending on the level and kind of adverse, when it was registered and settled, the loan to value and the reason behind it, there is a remote possibility that a challenger bank would consider it, but most likely this will be a niche lender job. Once again, every application is treated on a case by case basis.

 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

 

 

 

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