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Screensize: 640 x 480 800 x 600 1024 x 768 1280 x 1024 UserName: Password: Format Mode: Basic  Help  Prompt  Format: Font Andale Mono Arial Arial Black Book Antiqua Century Gothic Comic Sans MS Courier New Georgia Impact Lucida Console Script MT Bold Stencil Tahoma Times New Roman Trebuchet MS Verdana   Size 1 2 3 4 5 6   Color Black Red Yellow Pink Green Orange Purple Blue Beige Brown Teal Navy Maroon LimeGreen Message: * HTML is OFF * Forum Code is ON Smilies [quote][i]Originally posted by BankruptcyNews[/i] [br]Lenders open doors to blemished credit scores Borrowers with less-than-perfect credit ratings are muscling in on the buy-to-let market as lenders become more willing to accommodate those who have previously defaulted on loans. Traditionally investors with blemished credit scores have struggled to secure buy-to-let mortgages – the rationale being that if someone cannot keep up the payments on their main residence or their personal debt, they would be unlikely to make the repayments on a second or investment property their top priority if they ever ran into difficulty. But the increased popularity and low arrears rates of buy-to-let loans, coupled with the growing number of borrowers with flawed ratings, means some lenders are becoming more relaxed. Lenders are increasingly taking the attitude that if someone has encountered difficulties – possibly through illness or redundancy – the potential borrower should not be automatically excluded from this investment opportunity. Jonathan Cornell, technical director at Hamptons Mortgages, says: “Just because someone has had problems in the past does not necessarily mean they should be denied access to buy-to-let forever.” Typically those investors taking out “sub-prime” or “adverse” buy-to-let loans have had fairly minor credit indiscretions – maybe a month or two of mortgage arrears or historic county court judgments for around £1,000. But people with more severe black marks – even those who have entered into individual voluntary arrangements (IVAs) – could still be approved for buy-to-let loans. Generally, borrowers must settle any outstanding debt before they are granted the loans. They will also have to be prepared to pay a premium for their mortgage. Edeus, a lender that set up towards the end of last year specifically to target sub-prime lending, wrote £1bn worth of business in its first two months of trading. Alan Cleary, managing director, who previously worked at buy-to-let specialist BM Solutions, says: “When we were doing prime [buy-to-let] lending we were declining a lot of business as there were many customers failing credit scores due to small adverse issues.” He estimates that people with poorer credit ratings could account for up to 15-20 per cent of buy-to-let applicants. “Generally the people we lend to have pretty small blemishes on their credit record and in a lot of cases these are historic. We don’t lend to persistent credit offenders,” he adds. Also, the risk is mitigated by the fact that buy-to-let mortgages are based on the potential rental income of the property, rather than the income of the borrower. Cleary says: “A lot of the risk is not necessarily directly associated with the borrower but more where the payments are coming from.” He says people with worse credit histories will require higher levels of rental cover. But even someone classified as “light adverse” – one rung down the ladder from “near prime” – who might have £5,000 worth of past county court judgments or mortgage arrears of two months in a year – could gain a mortgage with Edeus at rental cover of just 110 per cent. The rates on sub-prime mortgages have become more competitive in the last year but the extra risk will still be reflected in the price. Edeus will offer a light adverse borrower a mortgage at 2.09 percentage points above base. A near prime borrower – someone with less than £1,000 in county court judgments or only one month of mortgage arrears – could get a similar loan at 1.59 percentage points above base and a prime borrower just 0.49 percentage points above base. Cleary says: “Any lending we do carries risk. The key thing is what is the risk and how should we price for it.” Ian Giles, director of marketing at Kensington Mortgages which also lends on adverse buy-to-let loans, says: “The specialist market is very dependent on pricing for individual risk. This is not really catered for by the high street banks.” He says Kensington divides borrowers with adverse credit histories into one of six categories, from near prime – which means borrowers must not have had a county court judgment in the last two years – to “high and”, people with unlimited county court judgments and unlimited arrears. Giles says the group will not offer buy-to-let loans to anyone who has been declared bankrupt but will consider people who have had quite severe credit issues. “We do not look at their history so much as their ability to pay in future,” he says. The worst offenders can only take a maximum loan-to-value of 75 per cent, and will face a steep loading on charges. Someone in the “high and” category looking for a buy-to-let mortgage on a two-year fixed-rate deal will be charged interest at 7.29 per cent with Kensington. Any arrears would have to have been settled and the last three months’ mortgage payments paid. Cornell says a key issue is the concept of credit repair. “If you give someone a mortgage at a higher rate and they prove they can meet payments, then a couple of years down the line they can move to a better rate.” Sub-prime lenders often only take business through mortgage brokers, who screen applicants to assess whether buy-to-let is really a sensible option. Cornell says: “If someone can’t balance their books then running headlong into a buy-to-let investment is probably not the right thing to do. But equally people shouldn’t be damned forever.” SOURCE: By Sharlene Goff FT Your Money 23/2/2007 See my Blogs: http://bankruptcynews.blogs.bankruptcyhelp.org.uk [/quote]   Check here to include your profile signature.