press release

BORROWERS with adverse credit histories should act now if they need to find deals on mortgages and credit cards before offers dry up – but they must expect to pay top whack, says personal finance data comparison site Moneynet.co.uk.

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, advises Moneynet.co.uk chief executive Richard Brown.

However, the bigger the financial difficulty, the higher the rate they should expect to pay.

“There is no question that the current climate is tough for those who don’t fit the criteria for standard mortgages,” says Brown. “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.

“These products should only be used to help people stabilise and restore their credit rating, not for continuing to finance an otherwise unsustainable lifestyle,” he added.

Chelsea Building Society is offering a more favourable rate of 5.69 per cent but only 75% LTV, a hefty 2.5 per cent fee and stricter rules of acceptance. BM Solutions’ two products carry higher rates but will go to 90 per cent LTV, making them an 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, advises Brown.”

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 punishing, rates are available from Aqua (33.9% APR) and Capital One (34.9% APR).

But Brown warns, “These cards carry exceptionally high 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 borrowers can expect to pay higher rates, with APRs of 17 or 18 per cent not uncommon. They should also remember that this kind of loan is secured against the home, putting it at risk if 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,” says Brown. “It’s commonly 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.”

* BBA/BSA data, April 2007