I've Got CCJs And Defaults Registered Against My Credit File - Can I Still Get A Mortgage?

High street mortgage providers can afford to be choosy in the current borrowing climate and if you have a bad credit background within the last 5 years then anticipate the computer to say no and your application to be turned down, especially if you are a first time buyer with a low deposit.

It's not entirely the banks and building societies fault for this picky criteria as it's more the case that they have now been forced to set the approval level extremely high by the regulators even though it was the Financial Services Authority (the mortgage industry regulator) that were found sleeping on the job in the run up to the subprime crisis and credit crunch.

Within the late nineties until the beginning of the credit crunch, property prices had continually boomed with double digit percentage growth rates year on year and providers had to respond to this requirement for higher value mortgages by enhancing the income multiples that they were using and easing lending criteria to allow them to contend with the significant demand created by new borrowers. Hindsight is a wonderful thing but unfortunately also around this time, to ensure that London became one of the foremost financial centres in the world, the Chancellor of the Exchequer, Gordon Brown introduced 'light touch' regulation for Banks and for this reason the FSA paid little thought to the scant regard to prudent lending that mortgage lenders were undertaking.

Historically, lenders would assess the maximum mortgage based on three and a half times the main applicant's gross annual salary plus once the second applicants earnings or alternatively 3 x the joint applicants salary but after deducting any existing financial commitments. However, with property values growing and wages not keeping pace, providers had to respond and many changed to using income multiple stretches of up to five times the main applicant's salary or to an affordability based mortgages model where some would evaluate maximum mortgage based on financial commitments (mortgage, loans and credit card payments) not exceeding 53% of net take home wage. (This was the equivalent of offering a 7 times income multiple)

The adverse credit market was also prospering and many high street providers were getting in on the act and the interest rates offered between prime and near prime borrowing were getting closer and closer as competition took off in this profitable market. Subprime lending criteria was improved and many providers operated a menu based process that put borrowers into categories such as near prime, light, medium, heavy or even unlimited adverse. It was possible to obtain a mortgage to stop repossession even if the applicant hadn't made a mortgage payment for the last six months and there was even a product to annul a bankruptcy by remortgaging available equity within a property to buy the borrower out of the bankruptcy or IVA.

The subprime crisis and credit crunch put a stop to all this as lenders were unable to raise funding for specialist mortgages and the lending tap turned off overnight putting borrowers in the poor credit arena with no hope of finding mortgage funding. Even if many of the specialist providers are no longer in existence, luckily as we start to turn the corner and come out of recession there are some specialist funders that are beginning to provide for lending to those with a previous adverse credit background.

Obviously the adverse credit mortgage offering is nothing like it was previously and if you are a first time buyer then financial institutions will not allow any CCJs or defaults to be recorded within the previous 2 years but as long as you meet this bad credit criteria and the lender's income requirements, it's viable to acquire a mortgage with only a ten per cent deposit. If you are a homeowner then a small number of defaults and CCJs are allowed during the last 2 years and even up to three missed mortgage payments within the last 12 months but wait for loan to value to be significantly limited with this amount of mortgage arrears.

The author, Shaun Bielby is a specialist mortgage and protection advisor with Mosaic Mortgages who are mortgage brokers that specialise in helping first time buyers with a poor or adverse credit history to obtain the most appropriate bad credit mortgage for the borrower's circumstances.