The number of credit-impaired mortgage deals are increasing but market competition has done little for consumers' interest rates, a Moneyfacts report has detailed.
The financial price comparison site found the number of credit-impaired mortgages had increased by 118 deals in the past six months to reach 843 available deals in August.
Credit-impaired mortgages are tailored to borrowers who have struggled with poor credit history.
Charlotte Nelson, finance expert at Moneyfacts, said the increase was good news for those who may have experienced difficulty in obtaining a mortgage.
But she said credit repair mortgages still accounted for a small proportion of the mortgage market at just 17 per cent marketshare.
Although credit-impaired mortgages are slightly riskier, it is by no means a return to the lending style of before the financial crisis...Charlotte NelsonHowever, Ms Nelson said the added competition has done little for interest rates offered to adverse credit mortgage customers.
She said: "Despite this boost in the number of deals however, the two-year fixed rate for those with a poor credit history has risen a whopping 0.17 per cent in the past six months to stand at 4.52 per cent.
"Not only have rates risen dramatically but, as to be expected, the prices offered by these deals are far higher than standard options on the market."
The average two-year fixed rate mortgage stands at 2.54 per cent - 1.98 per cent lower than the credit-impaired average - a difference Ms Nelson attributes to the extra risk involved for providers of credit-impaired products.
Ms Nelson said although credit-impaired mortgages were slightly riskier, there were no signs the market was returning to the lending style of before the financial crisis.
She added: "Back in August 2007, there were 5,106 credit-impaired deals, which accounted for a whopping 55 per cent of the residential mortgage market.
"At the time, lending principles were significantly looser than today and lenders are now required to delve a lot deeper into a borrower’s financial history to ensure they are able to afford the deal."
Ms Nelson concluded that credit-impaired deals offer borrowers, who have experienced minor issues in the past, a lifeline to get back on track once more and urged any borrower considering the deals to first seek advice from a financial adviser to ensure suitability.
rachel.addison@ft.com
