Subprime mortgages UK: what they are and who they're for

Subprime mortgages UK lending refers to home loans designed for borrowers who don't meet the credit score or history requirements of a mainstream lender. If you've had missed payments, a default, a CCJ, an IVA, or you're out the other side of a bankruptcy, a subprime mortgage may still be within reach.

The label "subprime" comes from the US mortgage market and picked up a lot of baggage after the 2008 financial crisis. In the UK today, lenders and brokers more commonly use the terms "adverse credit mortgage" or "specialist mortgage" - but they're describing the same thing: lending underwritten by a specialist lender who looks at your full circumstances rather than relying purely on an automated credit score.

This isn't a niche corner of the market served by a handful of obscure names. A number of well-established adverse credit mortgages providers operate specifically because mainstream banks won't consider these applications. You can check any lender or broker's authorisation on the Financial Conduct Authority register before you apply.

Subprime, or adverse credit, mortgages are aimed at a wide range of borrowers who mainstream banks turn away automatically, including:

• People with one or more missed or late payments on credit agreements
• Borrowers with a default or a CCJ recorded on their credit file
• Those who've completed an IVA or been discharged from bankruptcy
• Self-employed applicants with irregular or hard-to-evidence income
• Anyone with a low credit score who's been declined by a high-street lender

Lenders weigh up both how recent and how severe the credit issue was. A missed payment three years ago is treated very differently to a bankruptcy discharged last month, and most specialist lenders disregard credit events older than four years. Everything eventually drops off your credit file after six years.

Read our CCJ mortgage guide for more detail if a county court judgment is the main issue affecting your application.

Subprime mortgages work in a similar way to any other mortgage, but with three key differences: how the lender prices the risk, how much deposit you need, and how your application is assessed.

Because the lender is taking on more risk by lending to someone with a poor credit history, subprime mortgages typically come with a higher interest rate than a standard mainstream deal. Pricing varies significantly between lenders and depends on your individual circumstances, so it's worth speaking to an advisor for up-to-date figures rather than relying on generic examples.

Deposit requirements tend to be higher too. Where a mainstream mortgage might ask for a 10% deposit, a specialist lender is more likely to want 15-25%, depending on the severity of your credit history. On a £200,000 property, a 20% deposit works out at £40,000, while a 25% deposit would be £50,000.

The other major difference is how your application gets assessed. Instead of relying on an automated credit score, specialist lenders use manual underwriting - an experienced case handler reviews your full file, including the circumstances behind any credit issues, your current income, and how you've managed your finances since.

These three terms are often used interchangeably, but they don't mean exactly the same thing.

• Subprime - an American term describing lending to borrowers below investment-grade credit standards. It's rarely used by UK lenders today, though it's still one of the most searched terms for this type of mortgage.
• Near prime - describes borrowers with mild credit issues, such as one missed payment or a very old, minor default, who fall just short of mainstream lending criteria.
• Adverse credit - the term most commonly used by UK lenders today. It covers the full range of credit history issues, from a single missed payment to a discharged bankruptcy.

In practice, "subprime", "adverse credit" and "specialist mortgage" are used to describe the same corner of the market. "Near prime" sits at the milder end of that spectrum, closer to mainstream lending criteria.

A number of specialist lenders operate in the UK's adverse credit space, each with different appetite depending on the type and severity of credit issue. Well-known names in this market include:

• Pepper Money - considers a wide range of credit histories, including recent CCJs and defaults
• Precise Mortgages - offers products across the adverse credit spectrum, from minor to more severe issues
• Kensington Mortgages - one of the longest-established specialist lenders in this space
• Bluestone Mortgages - manually underwrites every case rather than relying on automated scoring
• Vida Homeloans - caters for a broad range of complex and adverse credit circumstances
• Together Money - considers cases that many other specialist lenders won't

None of these lenders deal directly with borrowers - they only accept applications through mortgage brokers. Lender appetite for different types of adverse credit shifts frequently, so working with an advisor who tracks a wide range of lenders makes a real difference to which options are available to you.

If you're also dealing with multiple existing debts alongside a mortgage application, it's worth reading our debt consolidation advice to understand how that might affect your options.

A subprime mortgage can open the door to homeownership, but it comes with trade-offs, and it's worth going in with your eyes open.

Because you're viewed as higher risk, you'll typically pay a higher interest rate than someone with a clean credit history, which usually means higher monthly repayments and more interest paid over the life of the mortgage. Arrangement fees and other charges also tend to be higher on specialist products, and some come with early repayment charges (ERCs) if you remortgage before a fixed period ends.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. This applies to every mortgage, not just specialist ones, but it's worth taking seriously before you commit to a deal that costs more each month.

If you're weighing up a mortgage against other ways of borrowing against your home, our guide to homeowner loans for bad credit covers an alternative route some borrowers consider.

If you're struggling with debt or unsure which option is right for you, free and impartial guidance is available from MoneyHelper (0800 138 7777), and Citizens Advice can also help if you're dealing with financial difficulty more broadly.

Yes. A subprime mortgage doesn't have to be a life sentence - for many borrowers, it's a stepping stone rather than a permanent arrangement.

Once you've made two to three years of on-time payments, and any historic credit issues have aged further or dropped off your file, you may qualify for a near-prime or even a mainstream mortgage deal. Remortgaging at that point can mean a better interest rate and improved terms, since lenders will see a track record of reliable repayments alongside an improving credit history.

It's worth planning for this from day one rather than waiting until your current deal is about to end. Our guide to remortgage with bad credit explains how the process works and what lenders look for when you come to switch.