Sub prime lenders - drawbacks?

We need to remortgage to pay off some debts and do up the house, but my husband has a really bad credit rating and no normal mortgage lender would touch him (even the one we're with) so it's looking like we may need to go to one of the sub prime lenders.

We have at the moment a mortgage of 100k on a house worth approx 450k and will need to borrow 60-80k. We should come into some money in about a year or so and would hope to pay it back then, but we can't wait until then, we really need the money now.

Apart from the higher interest rate, are there any other negatives about borrowing from a sub prime lender? I have heard various stories of people being told they could move after a year only to be told at a later stage that it wasn't possible and they'd have to wait longer, also that the main lenders look unfavourably on people with sub prime lenders - does this really happen? surely they can't lock you in once you're on a variable rate? Surely all the main ones are interested in is your ability to repay? (or am I being very naive....)

I'd appreciate any advice anyone can give, including which of the sub prime lenders are better than others. I'm also wondering if there is any benefit in going through a broker, i.e. are they likely to be in a position to argue for a lower interest rate?

Emily

If you have a poor credit history and have problems with your existing lender, you should consider going to MABS first of all to see if there is any lifestyle changes you can make.

I am very worried about this statement:

We need to remortgage to pay off some debts and do up the house

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Whatever about paying off expensive debts, you don't remortgage to do up the house. Wait until you come into some money.

You can repair your credit record over time, but you might need to adjust your attitude to money first.

Brendan

As Brendan said , forget about the home improvements until you have the money (unless by home improvements you mean necessary repairs)....


The only other disadvantage with sub-prime is that it will appear on your ICB until its paid off , I would assume having a sub-prime lender on there will ring bells for prime lenders even after you have cleaned up your credit....


Have you payments been up to date on the current mortgage , if they have then maybe you could work something out with your lender (given the low ltv involved)....

Emily123 said:

Apart from the higher interest rate, are there any other negatives about borrowing from a sub prime lender?

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Should you fall into arrears, they are generally quicker to go the legal route.

Emily123 said:

I have heard various stories of people being told they could move after a year only to be told at a later stage that it wasn't possible and they'd have to wait longer, also that the main lenders look unfavourably on people with sub prime lenders - does this really happen? surely they can't lock you in once you're on a variable rate? Surely all the main ones are interested in is your ability to repay? (or am I being very naive....)

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There are no guarantees that a mainstream lender will take you on after a year, 2 years etc. - it is entirely at their discretion.

Emily123 said:

I'm also wondering if there is any benefit in going through a broker, i.e. are they likely to be in a position to argue for a lower interest rate?

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I doubt you will get a lower interest rate by going through a broker, however certain sub prime lenders only offer their products through broker as far as I am aware.

This previous thread on sub prime lenders may be of interest.

We've already been refused a topup by our existing mortgage lender so that's not an option. This was purely on the result of a credit check on my husband as we have had a very good record with them, never missed a payment in 10 years and in fact had been paying €350 more per month on our mortgage than was required (not doing it any more obviously...).

The reason behind our current situation is a couple of bad years in my husband's business which is now resolved and going really well so we shouldn't have any financial problems in the future, but at the moment the monthly loan repayments are crippling us and we keep getting phone calls etc from the banks my husband owes money to because he's behind on payments (all personal loans not business loans). As regards doing up the house - yes it is essential work not just redecorating, but to be honest it's only a small proportion of what we're borrowing - 5-10k at most. I wouldn't consider our current lifestyle is in any way beyond our means.

I really would like to avoid the subprime lenders but I think the only way we can manage the current level of debt and start to improve my husband's credit rating is if we can consolidate the debt into a manageable monthly payment. I don't mind paying over the odds for a year or two but I'd hate to be stuck at their mercy for the next 5 years or more. I can't see the credit union being willing to help out for such a large amount of unsecured loan so I don't know if we have any choice.

Emily123 said:

but at the moment the monthly loan repayments are crippling us and we keep getting phone calls etc from the banks my husband owes money to because he's behind on payments (all personal loans not business loans).

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Have you contacted MABS as suggested above?

Emily

Am I missing something here? Your husband has been unable to meet some of his loan repayments, but at the same time, you have been paying an extra €350 per month on your mortgage? This doesn't make any sense to me.

Brendan said:

Emily

Am I missing something here? Your husband has been unable to meet some of his loan repayments, but at the same time, you have been paying an extra €350 per month on your mortgage? This doesn't make any sense to me.

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And I read it correctly your he is still behind on payments now ?

If that's the case I think even a sub-prime will think twice about giving you a loan....

Have you considered how you are going to pay back the mortgage top-up? If you cant afford to pay your husbands loan repayments right now, how do you expect to pay your husbands loan repayments + an increased mortgage?

Consolidating existing loans onto a mortgage may result in lower total monthly repayments. Of course if the consolidated loans are spread over a few decades then they could cost more in the long run though. I think the original poster needs to post some more detailed info and some responses to recent comments/questions.

Yeah the thing with the extra repayments to the mortgage is a bit of a sore subject.... Basically my husband was struggling in his business and just when things started improving for him both his parents died within a year of each other and he got depressed and found it hard to deal with everything and buried his head in the sand a bit and I wasn't aware of how bad it had got. Things have vastly improved now, his business is doing really well and he is dealing with everything no problem, but the constant worry of the loans and of his credit rating is really putting a strain on us.


The additional mortgage repayment shouldn't be more than an additional 400, whereas the current monthly loan repayments are probably in the region of 1200. We'd have no problem paying an extra 500pm on the mortgage if we didn't have the other loan repayments.

He did go to MABS and the best they could offer was to apply to our mortgage lender for a topup - which we did and were refused.

I can't really see any way out other than trying to consolidate the loans in some form or other, and I can't see any way of avoiding the sub prime lenders. From what I can see from your posts, the disadvantages of the sub primes are - higher interest rate, lodged with ICB so will always be visible to other mortgage lenders, quicker to resort to legal action if you default. Are there other things to worry about - eg if they agree a variable interest rate with you of (say) 7% can they suddenly up it to 9% 6 months later? Do they have penalties that are less than obvious or any other unscrupulous ways of getting their claws into you? Is any one better/worse than any other?

Btw I only have intermittent access to the website during the day so apologies if I don't answer your questions too quickly.

Emily123 said:

eg if they agree a variable interest rate with you of (say) 7% can they suddenly up it to 9% 6 months later?

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Yes, that's the nature of 'variable' rates. If the ECB base rate increases (there is a strong chance that it will), I would fully expect any variable rate to move in line, although a 2% jump in 6 months is probably not likely. And of course lenders are free to change variable rates at their discretion, regardless of what the ECB does.

Yeah the thing with the extra repayments to the mortgage is a bit of a sore subject....

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For how many months were you making extra repayments? How has your lender treated these extra payments?

It may be possible to recover the extra repayments from your lender, without affecting the original repayment schedule. Alteranatively, they might be willing to reduce the monthly repayments slightly, to reflect the reduced outstanding balance (if they haven't done this already).

If this approach does lead to a small lump sum, or extra monthly cashflow, your first priority should be to pay off your most expensive debts (highest interest rate, not the largest amount).