Getting turned down for a mortgage can happen to anyone.
Whether you’re looking to buy your first home, move, or refinance an existing loan, credit issues from your past can stop banks from saying yes.
That rejection stings even more when you know you can afford the monthly payments.
Your income is stable, you’ve got a good deposit saved, but those few missed payments from two years ago keep coming back to haunt you.
Meanwhile, property prices continue rising while you wait to improve your credit score.
But there’s another option many people don’t know about.
Near prime mortgages are specifically designed for borrowers who fall just outside standard lending criteria. They’re helping thousands of people across the UK secure mortgages every year, even with less-than-perfect credit histories.
By understanding how near prime mortgages work, you could find a way forward that suits your circumstances. Whether you’re planning to buy soon or just exploring your options, knowing what’s available helps you make better choices about your next steps.
Understanding Near Prime Mortgages
Near prime mortgages fill an important gap in the UK mortgage market.
They’re designed for borrowers who don’t quite fit standard lending requirements but have stronger credit profiles than those needing adverse credit mortgages.
While interest rates are higher than standard mortgages, they’re lower than those offered to people with serious credit issues (subprime).
Read more: What is a subprime mortgage?
Benefits of Near Prime Mortgages
One of the main advantages of near prime mortgages is that they open doors for those with imperfect credit.
By securing a near prime mortgage and consistently making payments on time, borrowers have an opportunity to rebuild their credit over time.
This can potentially allow them to access better rates or refinancing options in the future.
For example, let’s consider John, a first-time buyer with a few late payments on his record. Despite his credit blemishes, he was able to secure a near prime mortgage. By diligently making his monthly payments, John gradually improved his credit score and eventually qualified for a more favourable rate when he refinanced a few years later.
Specialist lenders dominate the near prime market. Rather than relying solely on credit scores, they examine your full financial situation. This broader view often leads to approvals even after high street bank rejections.
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Who Might Need a Near Prime Mortgage?
Minor credit issues don’t need to derail your mortgage plans.
Near-prime lenders understand that circumstances like brief periods of financial difficulty shouldn’t permanently affect your borrowing options.
They regularly work with borrowers who’ve experienced short-term setbacks such as missed payments during employment changes or defaults from several years ago.
This might include:
- Missing a couple of monthly payments on credit cards or loans
- Having a default that’s more than two years old
- Getting a County Court Judgment (CCJ) for a small amount
- Being new to the UK with limited credit history
For example, if you missed some credit card payments during a temporary work change but have since maintained perfect payment records, near prime lenders will consider this context.
Even self-employed people or those with irregular income patterns might find near prime mortgages more accessible than standard ones. Lenders assess your whole financial picture rather than just ticking boxes.
Risks and Drawbacks to Consider
While these mortgages can be a valuable tool for some borrowers, you need to carefully weigh up the potential drawbacks.
Compared to prime mortgages, near prime loans will come with higher interest rates, though they are still lower than subprime/bad credit rates. Lenders may also require lower LTVs and impose loan caps to mitigate their risk.
These factors can result in increased borrowing costs that strain monthly budgets.
In fact, near prime mortgage rates average around 2% higher than prime rates. Borrowers should be aware of the greater risk of default or repossession if financial challenges arise and they struggle to keep up with the higher payments.
Is a Near Prime Mortgage Suitable for You?
Before pursuing a near prime mortgage, you need to honestly assess your financial situation.
Consider whether you can realistically afford the monthly payments, factoring in the higher interest rates. Evaluate your job stability and potential for income growth in the coming years.
Ultimately, you’ll need to determine if the benefits of achieving homeownership sooner outweigh the added costs.
These mortgages are more expensive, but if used right, they could create a path towards getting a standard prime mortgage in a few years.
As a first step, you can use our online mortgage calculator to estimate your monthly mortgage costs based on different rate and term scenarios. This will give you a clearer picture of the financial commitment involved.
How to Qualify and Apply for a Near Prime Mortgage
If you decide that a near prime mortgage is right for you, there are several steps you can take to improve your chances of qualifying and securing the best possible rate.
It will really help if you can spend some time prior to applying for a mortgage, improving your situation.
First, work on raising your credit score in the months leading up to your application. Pay down existing debts where possible, ensure you’re current on all payments, and dispute any errors on your credit report. Ensure your electoral roll registration matches your current address.
Saving up a larger deposit is another way to increase your approval odds, as it reduces the lender’s risk. We know this is a tricky one but it can make a big difference to your options.
When you’re ready to apply, work with a whole of market mortgage broker who has experience with near prime mortgages. They can help you identify lenders who are most likely to approve your application based on your specific circumstances.
During the application process, be upfront about any past credit issues and prepared to explain the steps you’ve taken to improve your financial situation since then.
Lenders will want to see evidence of responsible financial management in recent years. Make sure to gather all necessary documents, including proof of income, bank statements, and a comprehensive overview of your current debts and assets.
Read more: Guide to applying for a mortgage
Mortgage Brokers
When you’re struggling to get a mortgage from a regular bank, a mortgage broker could be your best friend.
Brokers know the mortgage market inside out.
Everyday they work with lots of different lenders and can find mortgage options you’d never discover on your own. Their job is to cut through the complicated paperwork and find a loan that fits your specific situation.
Why Use a Mortgage Broker?
A good broker does much more than just find a loan.
They’ll look at your entire financial picture, find lenders who are likely to approve you, and help you understand all the small print. They can explain the complicated bits, negotiate better terms, and give you advice on improving your chances of getting a mortgage.
Not all brokers are the same. The best ones will:
- Search across many different lenders
- Have experience with credit impaired mortgages
- Charge transparent fees
- Have good reviews from past clients
- Hold proper professional qualifications
Most brokers offer a free first meeting or phone call.
This is your chance to talk through your situation and get some expert advice without spending any money. They’ll help you understand how different mortgage options could impact your long-term financial goals.
Your mortgage is probably the biggest financial decision you’ll make. A skilled broker can turn a stressful process into a smooth journey towards owning your home.
Read more: What does a mortgage broker do?
To Sum Up
Near prime mortgages can be a double-edged sword, offering both the opportunity for homeownership along with the risk of higher costs and default.
By carefully weighing the pros and cons against your personal financial circumstances, you can determine whether a near prime mortgage is a smart choice for you.
Take the first step today by speaking with one of our expert brokers for a free, no-obligation consultation. They will help you assess your options and create a personalised plan to achieve your goals.
Frequently Asked Questions
This does vary between lenders but most near prime lenders require at least 25% deposit, though some may accept 20% for strong applications. On a £400,000 property, you’d need £100,000 deposit at 25% LTV.
Read more: A Guide to Mortgage Deposits
Most lenders want defaults to be at least 2 years old. Some may consider more recent defaults if they’re small amounts and you can explain the circumstances.
Self-employment is completely acceptable, but you’ll need to show 2-3 years of accounts. Some lenders may consider 1 year with a strong business plan.
Read more: Can I get a mortgage if I’m self-employed?
Not necessarily. CCJs under £1,000 and over 2 years old are often acceptable. They must be settled before applying.
Related reading: Do I have a CCJ? How do I find out?
If the IVA is discharged and you’ve maintained good credit since, many near prime lenders will consider your application.
Mortgages are based on your gross income and affordability. Most lenders cap lending at 4-4.5 times your annual income. Some may stretch to 5 times for high earners or certain professional occupations.
Read more: What size mortgage could I afford to borrow?
