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Southern Pacific looks at the adverse credit market

Southern Pacific Mortgages has introduced the fixed rate adverse credit mortgage.

It has a fixed rate of 6.75 per cent for loans of up to a maximum of 65 per cent of valuation. The rate will be fixed until September 1, 2002, after which it will revert to a percentage above the London Interbank Offered Rate that will vary according to the size of the loan.

The mortgage is aimed at people who have had a history of bad credit, including county court judgements (CCJs) made against them and previous mortgage repayment problems. It is also available to self-employed people who have had difficulty obtaining a mortgage in the past because they have been unable to prove how much they earn, because they do not have pay slips.

There is a redemption fee of six per cent in the first three years, after which it drops to one per cent for the remaining term of the mortgage. It also comes with an arrangement fee of £395.

The adverse credit market is increasingly being targeted by lenders. Over the past few years lenders such as Birmingham Midshires, Chelsea and Bristol & West have been entering this area of the market. A recent report from Bristol & West revealed that gross UK lending totalled £121bn in 2000, with the adverse credit market taking up £2.2bn of this. By 2005 the adverse credit lending market is expected to grow to £17bn.

According to Moneyfacts the most competitive one-year fixed rate adverse credit mortgage is from the First National Mortgage Company. This has a fixed rate of 5.99 per cent for loans of up to 60 per cent of valuation until August 31, 2002, and has a more competitive redemption penalty of four per cent of the advance in year one, two per cent in year two and one per cent thereafter. It also has an arrangement fee of £395.

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