Published: 14/11/2007

Since the tsunami of the US sub-prime mortgage disaster rolled across the Atlantic and crashed into the UK's financial defences the number of people being refused credit has shot up as lenders batten down the hatches against more bad debts.

But there are still a few deals on offer to borrowers whose credit history includes mortgage arrears, bankruptcy, IVAs and CCJs. However, the bigger the financial difficulty the higher the rate you can expect to pay.

There is no question that the current climate is tough for those who don't fit the criteria for standard mortgages. There are deals to be had but the rates can be extremely high, as much as 9.99 per cent fixed until November 2009 from Alliance & Leicester in order to offset the allowances made for unlimited CCJs, unlimited mortgage arrears and a blind eye turned to defaults on credit card payments. This is nearly twice the best fixed rate offers on the market for the most credit worthy borrowers.

Chelsea Building Society is offering a more favourable rate of 5.69 per cent but only up to 75% and with a hefty 2.5 per cent fee. BM Solutions' two products carry higher rates but will go to 90 per cent LTV making them a possible option for those finding themselves in difficulty but with less equity.

And as the credit crunch continues to squeeze the life out of the UK's most vulnerable financial institutions there will be fewer of these kind of deals on offer as more lenders pull out of the sub prime market. Borrowers who can't sit tight and wait for calmer market conditions may need to act now.

With Christmas now uncomfortably close for consumers with cashflow problems and poor credit credentials, there are credit card deals available but punitive rates mean they need very careful handling.

The Vanquis card aimed solely at the adverse credit market comes with a wallet-busting 39.9 per cent typical APR, rising to 59.9 per cent APR for those with the most severe problems. Initial credit limits range from £250 to £1,000 and there are up to 56 days interest free on purchase transactions only, provided two or more consecutive current statement balances have been paid off in full and on time. Alternatives at slightly lower, although still punitive, rates are available from Aqua (33.9% APR) and Capital One (34.9% APR).

These cards carry punitive interest rates and should be used with extreme caution. Only ever consider one of these cards on the basis that the balance will be cleared in full each month and consider them a short term solution to help rebuild credit history. Anything else is a recipe for disaster as the debt will quickly spiral out of control if not repaid in full each month.

Unsecured personal loans are a no go area for adverse credit customers but there are secured loan deals at higher rates. There are a number of loan brokers who cater for the bad credit market but expect to pay higher rates with APR's of 17 or 18 per cent not uncommon. Borrowers should also remember that a secured loan is secured against the home, putting it at risk if the repayments are not met.


All these products should be viewed as short-term solutions for getting out of a financial mess and back into mainstream borrowing. Consumers at the margins of the economy are in a dangerous place as they are the first to catch the fall-out from financial matters out of their control. It's also the case that those least able to afford the repayments are charged the highest rates and have the fewest options meaning that all adverse financial products need to be treated with extreme care.