In the UK we have always liked to think that our tiny little island is a world super-power. However, post-Brexit the reality of the situation is that we will be alienating ourselves from Europe. Article 50 will be triggered no later than March 2017 so can we broker worldwide trade agreements in time? London is currently one of the main world stock trading centres. However, will that change once the 2 year period starts following article 50 being invoked? Our economy always tends to be driven by events happening elsewhere in the world. Hence, if we lose our financial services sector to elsewhere in Europe, what will happen to bad credit mortgages?
Bad Credit Mortgages – Learning From Past Mistakes
Confidence is the key and lack of confidence created the sub-prime crisis which hit the UK in August 2007. Too many of the UK lenders were exposed to buying ‘mortgage backed securities’ on the financial markets. The problem occurred because even though these mortgage backed securities were rated ‘triple A’, it was all based on lies. ‘Triple A’ rated were groups of loans of clean, low LTV lending which supposedly had very low default rates. The reality was that these securities included a great deal of sub prime, self cert and ‘ninja’ mortgages. This higher risk profile lending obviously started to default significantly higher than expected, causing balance sheet issues for lenders.
No one ever believed a Bank could fail. However, once the true picture emerged of the number of Bank’s over-exposure to this defaulting debt, confidence was lost. Lenders offering bad credit mortgages relied on the inter-bank markets to finance their lending activities. Literally overnight bad credit mortgages disappeared as the sub-prime market collapsed. There was no inter-Bank funding available given no Bank would lend to another on the financial markets. Specialist Lenders defaulted on short term lending falling due for repayment which put them out of business for good.
Fortunately in 2011, ‘Challenger Banks’ entered the fray and Aldermore Mortgages, Precise Mortgages & Kensington offered a ‘near-prime’ option. They aimed to help those borrowers with CCJ’s & Defaults registered in excess of 2-3 years ago. Borrowers with historic bad credit were required to have clean record since the original blip subject to specific lending criteria.
The Future For Bad Credit Mortgages
More specialist lenders have launched who once again cater for borrowers falling into near-prime, medium or heavy adverse categories. Further enhancements have been made to criteria and 90% LTV is now available with historic bad credit. This product is available as long as there are no Defaults or CCJs within the last 2 years. Although at 85% LTV, some bad credit mortgages will accept CCJ’s & Defaults within the last 2 years. Furthermore, discharged bankrupts are able to get a mortgage but loan to value is typically restricted to 60% loan to value.
The worrying aspect is that the majority of these lenders still finance bad credit mortgages using inter-bank markets. What will happen if we catch a cold with the fallout from Brexit? What will happen to the financial services market which is currently based out of London? As mortgage funding is not as readily available from European Banks, what will be the impact if the financial centre is relocated from London to elsewhere in Europe? Given confidence is the key to making the financial markets tick over, if Brexit causes a loss of confidence, inter-bank markets may freeze once again. If this happens then those borrowers looking for an adverse credit mortgage may have more problems finding a willing lender in the future.
Mosaic Mortgages are specialist bad credit mortgage advisors and we can assess your particular circumstances and advise you of the most appropriate mortgage for your needs. Contact us for a no obligation quote and to see whether you are eligible for any of the specialist bad credit mortgage schemes currently available.