Subprime Mortgages UK: Are They Right for You?

What is a subprime mortgage?

A subprime mortgage (also called adverse credit, non-conforming, or specialist mortgage) is designed for borrowers who don't meet the lending criteria of mainstream banks. This might be due to poor credit history, non-standard income, or unusual property types.

The term 'subprime' gained negative connotations after the 2008 financial crisis, but the UK subprime market today is heavily regulated by the FCA and operates very differently from the US market that caused the crash. UK subprime lenders conduct thorough affordability checks and responsible lending assessments.

Who needs a subprime mortgage?

Subprime mortgages are typically used by borrowers who have:

• Adverse credit history: CCJs, defaults, IVAs, bankruptcy, missed payments
• Complex income: Self-employed with less than two years' accounts, contractors, multiple income sources
• Non-standard properties: Ex-council flats, flats above commercial premises, unusual construction
• Older borrowers: Those over 55–60 who exceed mainstream lenders' age limits
• Non-UK nationals: Visa holders, expats, foreign nationals buying UK property

Typical rates and costs

Subprime mortgage rates are higher than mainstream rates to reflect the additional risk. As a guide:

• Light adverse (minor issues): 1–2% above mainstream rates
• Medium adverse (CCJs, defaults): 2–4% above mainstream
• Heavy adverse (bankruptcy, IVA): 3–6% above mainstream

In addition to higher rates, arrangement fees tend to be higher (often £1,000–£2,000) and you may need to pay a higher lending charge. A broker can help you compare the total cost, not just the headline rate.

Risks to be aware of

While subprime mortgages provide a valuable route to homeownership, there are risks to consider:

• Higher interest means higher monthly payments and more paid over the term
• Early repayment charges may be steeper than mainstream products
• Some products have variable rates that could increase further
• A larger deposit is usually required (15–25%)

How to apply for a subprime mortgage

The application process is similar to a mainstream mortgage, but documentation requirements may be more detailed. Lenders will want to understand the circumstances behind your credit issues and see evidence that your financial situation has improved.

A specialist mortgage broker is virtually essential for subprime applications. They can identify the right lender for your specific situation, prepare your application appropriately, and negotiate on your behalf.

Nesto matches you with FCA-regulated specialist brokers. Get matched free in under two minutes.