Virgin Money’s decision to consider mortgage applications from people with county court judgments (CCJs) demonstrates that mainstream lenders are prepared to be flexible when it comes to clients with a bad credit history.
A CCJ has been a major obstacle to getting a mortgage since the financial crisis but that appears to be changing. Asked by Mortgage Solutions why Virgin Money had decided to consider applications from people with CCJs, spokesman, Simon Hall said: “Previously, we did not accept applications with any CCJs. However, many other lenders will consider this and so we will now accept satisfied CCJs totalling a maximum of £500. In terms of rates, the new policy applies across the product range.
“Cases will be declined if the applicant has any unsatisfied CCJs, or CCJs totalling more than £500, even if they are satisfied.”
‘Complexities of modern life’
Last year, Registry Trust reported that in 2017 the number of CCJs passed in England and Wales was 1,138,058 – more than in any other year since the trust started recording CCJs on behalf of the Ministry of Justice in 2005. By the end of the third quarter of 2018, 850,000 CCJs had been issued for the year.
The rise in CCJs, and the relative ease with which they are issued today, is one reason why Virgin Money’s announcement was welcomed by Nicholas Morrey of Charcol:
“Given the complexities of modern life, and the fact minor adverse entries on credit files are on the up, we believe that Virgin are simply recognising modern life,” he said. “If someone has a dispute with a mobile phone provider, for example, that they cannot resolve through a customer services department that is remarkably quick to lodge a default or a CCJ then that does not necessarily mean they are a bad prospect for mortgage purposes.
“Virgin’s approach is a positive one that we welcome for minor adverse cases that could otherwise cause borrowers to be forced out of mainstream lending towards ‘sub-prime’ products for years just for a misunderstanding that has led to an unfortunate conclusion with expensive ramifications.”
‘The market will grow’
Paul Adams, sales director at Pepper Money, which does lend to borrowers with CCJs, expects to see an increase in such applications. He said:
“In recent years we have seen a trend for growing numbers of CCJs to be issued to more people, for smaller amounts. So, it is natural to assume that demand for mortgages from borrowers who have received CCJs is also likely to increase and lenders have developed criteria and processes to cater for these clients in a way that is accessible and responsible. I think this part of the market will grow.”
“Life does not always run smoothly and sometimes people encounter difficulties such as redundancy, illness or divorce, which can leave a lasting impact on their credit file. As long as customers are able to demonstrate that a mortgage is affordable and sustainable, they should not be denied access to the market.”
Adams believes mainstream lenders will need to become more flexible if they’re to cater to borrowers with adverse credit.
“Many mainstream lenders already accept some cases that include an element of adverse credit, but the process is usually automated through a credit scoring system and, in these circumstances, it is difficult for a broker to know from the outset whether or not a case is likely to be approved,” he said. “We think this puts brokers in a difficult position and so remain committed to transparent criteria and underwriting.”
Flexibility at a cost
In August 2007, on the eve of the financial crisis, there were 5, 106 credit-impaired mortgage deals available. Today, Moneyfacts put the figure at 590. Of these, the average rate for a two-year fixed is 4.36 per cent – a far cry from the 2.48 available to full status borrowers. For a five-year fixed, the rate has increased from 4.76 to 4.92 per cent in the past six months.
As Kulvir Singh, a broker at City Mortgage Solutions, said: “The problem is that as soon as you get a CCJ your interest rate is going to be significantly higher than it will be for a vanilla client. I’m sure more lenders will open up in future (to borrowers with bad credit). But it will be at a cost.”
However, Darren Cook, of Moneyfacts, believes such deals are an “essential option” for some borrowers:
“Customers who are minor credit impaired may be those who have experienced an ‘exceptional circumstance’ to place them in that situation, so as long as the mainstream lender does not see ‘’bad debts’ as a customer’s habitual problem, some providers will most probably continue to entertain minor debt lending,” said Cook.
“If there is sufficient demand and other mainstream lenders see themselves able to manage this type of riskier lending, other mainstream lenders may considering this option.”