A County Court Judgement, or “CCJ”, for short – the result of court action, by a creditor, to recover outstanding monies owing – can, and almost certainly will, have a highly detrimental effect on a borrower’s credit rating, to the extent that many high street lenders will not offer mortgages, or, indeed, any other type of financing, to individuals who have CCJs against them.
There are, however, many specialist mortgage lenders who are happy to consider lending to individuals with CCJs, or other adverse financial circumstances, but CCJ mortgages are likely to only be available at unfavourable rates, when compared to standard mortgage products.
County Court Judgements (CCJs)
A creditor – that is, someone to whom you owe money, for example, on a credit card, or personal loan, account, which has not been conducted according to the original terms and conditions – may take action against you, in the County Court, to recover the money from you.
If you are able to pay the outstanding amount, it may be possible to avoid any form of hearing, or judgement, but, if not, a court hearing will be necessary, although you need not, necessarily, attend this hearing in person.
Following the court hearing and, obviously, dependent on the outcome, an order – the CCJ itself – may be issued, detailing how much is to be repaid, and whether this is required as a single payment, or monthly instalments.
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The court will send you a “Claim Form”, with the details of the claim against you, and an “Admission Form”, on which you will be required to give details of your income and expenditure, and can make an offer to repay the debt, if you so wish. If you disagree with the findings of the court – for a genuine reason – it may be possible to have a CCJ “set aside”, while you further explain you situation. There may, however, be a charge for this, and the court will take a dim view of any fraudulent or time wasting activity on your part.
CCJ Mortgage Considerations
Even if you have a CCJ against you, it may still be worthwhile, in the first instance, approaching high street lenders, to see if you can still obtain a mortgage at a reasonably competitive rate. The chances are, however, that you will need to approach a specialist mortgage provider, in which case you should be prepared for an interest rate that is higher than the current average, although not hugely, or unaffordably, so.
In fact, despite the stigma – and, obviously, the higher interest rate – often associated with a CCJ mortgage, it can represent an intelligent investment, and is far and away the fastest way of repairing your credit rating, provided, of course, that repayments are made on time.
Paying off a CCJ mortgage loan for a period of roughly three years may, for example, “repair” your credit rating sufficiently that you can remortgage, at a much more competitive rate, with a mainstream, high street lender. Meanwhile, you are investing in your own property, as opposed to effectively throwing money away on rental property, and establishing equity, which you can use to move up the property ladder, when your financial situation improves.
You do, of course, need to assess the pros and cons, and, indeed, the timing of a CCJ mortgage, in relation to your own personal circumstances. If you have recently received a CCJ, you may find that the interest rate you obtain on a CCJ mortgage is several percentage points above the standard rate, in which case you may decide to make payments against the CCJ, for a period of time, until your credit rating improves. However, you may wish to rapidly improve your credit rating, in which case – of course, bearing in mind the higher monthly repayments – a CCJ mortgage may be a more immediate choice.
Bear in mind that mortgage lenders are likely to impose not only higher interest rates, but also different terms and conditions, on CCJ mortgages. Booking, or arrangement fees, late payments charges, and early redemption penalties are all likely to be higher than those for more standard mortgage products. The projected profit that a lender calculates on a CCJ mortgage loan is based on the full term of that loan, and, to prevent any loss of profit – if the loan is repaid earlier than expected – the lender stipulates an early redemption penalty, which, in many, cases, can be very stiff.
On a more positive note, many mortgage lenders also offer incentives, or rewards, with this type of mortgage product, to encourage improved financial management. It may be, for example, that if you make a requisite number of repayments on time, your interest rate will be reduced. This can be of great help in establishing a regular repayment pattern, and thus further improving the credit rating of a borrower.
Conclusion
Borrowers should be aware that the terms and conditions of CCJ, or any other form of adverse credit, mortgages vary quite widely from lender to lender, so it is wise to examine, very carefully, the “small print” of any mortgage offer. Thankfully, nowadays, all of the relevant information, including details of any fees and charges, should be presented to any prospective borrower in the form of a “Key Facts” document, provided by the mortgage lender. This helps to assess the overall cost of a mortgage, and includes details beyond, for example, any initial, “incentive” period. Borrowers should also ascertain that their credit rating is, in fact, sufficiently adversely affected by a CCJ to make them ineligible for a standard mortgage; it is not unknown for unscrupulous brokers to attempt to sell expensive CCJ mortgages – with higher profits, intrinsically, for the broker – unnecessarily.
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