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Exactly how bd an idea would it be to get a sub prime mortgage?(12 Posts)
Me and DH want to buy a house, we have the income for it, we can get hold of the deposit, but we have a not excellent credit record and much of my income is commission. We do however have people who would (very kindly) stand as guarntors for us.
We are mainly buying as we are sick of the letting agent messing us around (and it isn't the first house where we have had a bad landlord) and it is getting to the point where we may have to leave the house we are in.
according to a mortgage advisor, for the best mortgage we would be better off saving and generally building up a good record for six months to a year, but we could get SOMETHING now...
Should we go thorugh all the expense and upheaval of moving to another rental, or bite the bullet and get a mortgage on not as good terms and maybe for not as much?
I would stick with rental atm; all predictions are for house prices to drop, and interest rates to rise over the next year. If you have a poor credit record, you'll be paying over the market interest rates anyway. How much mortgage can you afford at 15%? (Yes, DH and I paid that, and not so very long ago.)
There's more than one letting agent.
I think you would be insane.
You will pay the higher rate for the rest of the term of the mortgage, so it could cost you tens or hundreds of thousands of pounds over 25-30 years.
You seem to be a bit blithe about what the guarantor stands to lose if you default. Do these people fully understand they would lose their own house?
I note you say you "could get hold of" a deposit. That doesn't suggest to me that you have a track record of saving.
There's a reason you're sub-prime, and there are very sound reasons sub-prime mortgages are a lot more expensive than normal ones. Keep renting and saving and building up your credit record. It will be much cheaper in the long run.
It would be an exceptionally bad idea.
In a year's time you could find yourself facing rising interest rates, and falling house prices (prediction is around 10% I think) which could easily wipe out your deposit and leave you owing more (on punitive credit terms) than the value of the house you own. Once you're in that situation, you cant sell and it's near impossible to remortgage, even if your financial situation improves and you'd be in a position to take advantage of a better offer. Also, as has been mentioned, many mortgages offered to people with poor credit are term mortgages- you cant shop around for a better deal every few years as you can with a lower risk product.
If the mortgage advisor, who is presumably trying to sell you a mortgage, is advising you to wait, then wait.
it really would NOT be worth it. you would probably regret it for a significant part of the rest of your life. Wait and save.
Why don't you go to your bank for professional advice? Just simply state what you want to achieve.... and you will get the answer. I really don't understand all this amateur advice.
Yeah, that'd be the banks who offered subprime mortagages left, right and centre, and got us into this mess in the first place? Smart idea.
I am with OldLady.
At the end of 2007 our bank offered us a truly ridiculous amount of money, even though I was quite clearly 8 months' pregnant and we had been completely upfront about our income.
We would have been seriously underwater from the day I stopped work. They were clearly confident that the housing market was still rising fast and if they did have to force a mortgagee sale in four or five months they'd still make money.
In case you haven't twigged yet, banks aren't interested in what's best for you, they're interested in locking you into the deal that's best for them.
You will almost certainly get better advice on a sensible public forum like MN than you will from walking into a branch of NatWest and speaking to a manager with a sales target to meet.
Anyway, she has taken professional advice - the mortgage advisor- and he said she'd be better to wait.
Ninedragons is right- the bank will lend to you if it fits their risk profile, so it's fine if either
- you don't default and pay the mortgage as agreed
- you do default but house prices have risen so when they foreclose they get their money back.
To be fair, I don't think the OP would find a product on the High Street in her current situation without a very large deposit (25%+)
If you are mainly buying because you are sick of having bad landlords and of your letting agent messing you around why don't you give notice and move but take some steps to make sure you get a decent landlord this time? If you credit rating is low then would the people who are happy to act as guarantor for you mortgage be happy to do so for a new rental? That way you can stay in a decent house until your credit rating has repaired.
Banks basically see sub or near prim lending as a massive opportunity of profit because people are inclined to be a bit a little bit desperate so you will be charged like mad every step of the way...the only way that you will get away from that is to be able to repair your credit rating sufficiently so that you can re-mortgage to a normal deal in the future.
The key IMO when looking for a decent rental is to be quite assertive from the outset so I ask quite a few questions about the landlords situation before I even start on the property. If the landlord doesn't fit my profile then I won't look at the house. I want a pro landlord who is established and solvent, ideally the property will be un mortgaged and definitely a full time let (I don't even look at homes that people are going to get all sentimental about and want to return to with a few months notice). I also won't rent from anyone who has had to move out of the home because they can't afford to live there (being evicted from a rental due to LL non payment of mortgage sounds like a PITA to me). Most of this can be established if you ask the right questions...sounds a bit arrogant perhaps but I've moved a lot, this time around (fingers crossed) I have a decent solvent LL who owns this property and several others outright. The house is a tad basic in places but that is easier to live with than a crappy LL...I'd hang in there for a bit longer, renting can be ok when it works out.
I had a sub prime mortgage after my divorce left my my credit record in tatters and I was desperate to get my exh off the mortgage. I had to pay a good two percent above the highest High Street Bank rates but was fortunate in having a large equity in my property and a low mortgage despite the high rate.
After three years of repairing my record and staying faithfully in the black I successfully moved to a lower rate with a High Street Bank.
I guess sub primes arent all bad news but you have to be sensible about the reasons you want one and aware of the risk you'll be taking. For me it worked out but if you could repair your credit and hold out a bit longer in rented you might not have to take a risk. Having a commission based income and maybe having to use guarantors would be a risk too far for me.
Good luck in whatever you decide
It would cost you more if you take out a sub-prime mortgage now than it would to get a better record for the next year. Please do not get into that trap.