Don't let debt problems prevent a fair mortgage deal

People with a history of debt, including county court judgements and bankruptcy, can now obtain a fairer deal with their mortgage: there is now far more choice on the market, with better deals, too. But some borrowers, who are often already in a financially vulnerable position, continue to be ripped off - by brokers charging high fees, and lenders tying customers in and charging huge rates of interest.

Among those who are offering more competitive loans to those with debt problems are the Bank of Scotland subsidiary, The Mortgage Business, Chelsea Building Society and Bristol & West. Many of the mortgage products are sold on the advice of specialist mortgage brokers, as high street lenders turn away many people with credit problems.

Last year, about 400 people complained to the Mortgage Code Compliance Board, saying that the broker had not returned fees paid once the mortgage had fallen through, even though this is a legal requirement.

Those considering seeing a broker should check they abide by the Mortgage Code. Lenders, too, have been slammed for charging vastly inflated rates and tying customers in. While standards lenders can offer redemption tie-ins of up to three years, those insisted on by adverse credit specialists could be far longer.

Bristol & West said it wanted to raise awareness about some of the bad deals on offer and of the amount of people affected by debt problems.

Denzil Morgan, head of specialised lending for Bristol & West said: "People with black marks on their credit history can be made to pay for their mistakes forever." He said while a number of high street lenders wanted to cash in on the non-standard market, they tended to give their operations different names.

Examples include Verso from the Britannia Building Society and First National, a subsidiary of Abbey National. "The only reason we can see for these banks and building societies to set up these operations is to avoid brand contamination. We believe using our main brands means a fairer deal for customers," he said.

Morgan added that a common ploy by less reputable lenders was to offer an enticing headline rate followed by a loaded rate for the remainder of the mortgage term. Bristol & West said it also differed from other providers through offering pre-completion counselling. This means borrowers can arrange specific dates to pay the mortgage when their salary is paid in, and they know who to contact if there is a likely problem.

But anyone taking out a mortgage after debt problems should expect to pay a higher rate, at least for a shorter period, such as two years, as lenders say these people are higher risk. Even so, this should not be extortionate and there should be the opportunity to repair a credit history.

Within three years, and providing the mortgage is being repaid satisfactorily, the borrower should return to a standard variable rate, either with the existing lender or to a high street one.

Managing director of specialist broker Jim White's Mortgage Solutions, Jim White, said: "The adverse credit mortgage market generally receives bad press, focusing on rip-off brokers and greedy lenders. These do exist, but there is a more reputable side."

Who is affected by adverse credit?

• One in four people are turned down for a mortgage on the high street. This represents some five million households.

• A poor credit history can be triggered by forgetting to pay a final demand bill, arguing about payment of a bill with the issuer, or mix-ups over direct debits.

• People with debt problems are not all from lower socio-economic classes. Borrowers with Bristol & West's adverse credit products include accountants, teachers, police officers and managing directors.

• The main reasons for poor credit histories include financial mismanagement, business failure, divorce, job losses and illness.

• A CCJ is registered against an individual's name for six years.