Is There A Future For Bad Credit Mortgages?

By Author: Martin Sumner
Total Articles: 432
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The news is full of economic gloom and doom, with recession and tumbling house prices causing pain for many millions. It's now widely accepted that all this was brought about because of an overindulgence in lending and borrowing, with huge international financial companies lending money to people who had little prospect of paying it back.

These loans are commonly referred to as 'sub prime' - but a less jargonistic way of describing them is simply 'bad credit mortgages'.

Given the harm that these loans have wreaked across the world, is there ever going to be a time again when people with less than perfect credit ratings will be able to get a mortgage to buy their home? While things at present don't look good, the answer is almost certainly yes. Why is this?

Firstly, the really dangerous loans that were made were not simply mortgages to people who had had credit problems in the past. They were loans that were at the very edge of affordability for their borrowers. These loans were advanced often with the full knowledge that default and foreclosure was a likely outcome, because the lenders knew that the soaring ...
... property prices of the time meant that even foreclosure represented a profitable outcome for them.

This was perfectly legal, although morally highly dubious, and also short sighted as it didn't account for the fact that house prices could never have carried on rising forever.

The second problem was that these loans were split up into bundles and sold on as triple A investments - i.e. this very risky finance was, by financial sleight of hand, repackaged as extremely safe. This seems impossible to believe, and the fact that we're in so much trouble now is proof that it was never going to work.

So, with all this in mind, it's easy to suppose that lessons have been learned and that only borrowers with the highest quality credit ratings will be able to get finance in the future. This is more or less the position now, with mortgage lending at historic lows.

It won't stay this way forever though - once the housing market finds its low point and property prices begin to rise again, lenders will once again begin to take more risks in who they lend to, and so people with less than perfect credit ratings will be able to finance a property purchase.

It's sincerely to be hoped however that the lunacy we've seen is not repeated, and finance is only extended to people who can afford to repay it, whatever their previous credit problems.

About the author: Martin writes for http://www.adm-mortgages.co.uk/ and you can read more about bad credit mortgages at http://www.adm-mortgages.co.uk/bad-credit-mortgages.html