Getting a mortgage with bad credit

Equip yourself with the knowledge to secure a mortgage despite bad credit in 2024. Act now and move forward with confidence!
Navigating a mortgage application with bad credit can be challenging, but not impossible. Contact your mortgage adviser today!
bad credit mortgage

Having bad credit doesn’t necessarily mean home ownership is out of reach. Understanding mortgages with bad credit, and the solutions available to you, can be the key to turning your property-owning dreams into a reality. This guide will delve into the nuances of acquiring a mortgage with bad credit in 2024, exploring the options and obstacles you may encounter along the way. Whether you’ve had financial missteps in the past or you’re new to credit, the world of bad credit mortgages can be complex but navigable with the right knowledge and guidance. So, let’s take a closer look at how you can unlock the door to your new home, even with a bad credit history.

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Can I get a mortgage with bad credit?

Yes, it is possible to get a mortgage with bad credit, but it may be more challenging and potentially more expensive. Lenders will assess your risk as a borrower, and if you have a history of missed payments, defaults, or bankruptcy, they may see you as a higher risk. This could result in higher interest rates or a requirement for a larger deposit than a borrower with a good credit history might need.

In the UK, there are certain mortgage lenders who specialise in offering ‘bad credit’ or ‘subprime’ mortgages to those with poor credit history. They’ll often look at a wider range of factors beyond just your credit score, like your income, employment, and the size of your deposit. However, the terms of these types of mortgages can vary widely, so it’s important to thoroughly research and understand the conditions and potential long-term costs.

Improving your credit score before applying for a mortgage can open up more opportunities for you, potentially giving you access to better rates and terms. This could involve paying off outstanding debts, ensuring you’re on the electoral roll, and making sure all information on your credit report is accurate.

Remember that every lender has different criteria, and what may be acceptable to one may not be to another. It can also be beneficial to talk to a mortgage broker who can provide advice tailored to your situation.

Keep in mind that this advice is based on general principles and might not apply to every individual’s specific circumstances. Always consult with a financial advisor or mortgage specialist for personalised advice.

What is a bad credit mortgage?

A bad credit mortgage, sometimes referred to as a subprime mortgage or adverse credit mortgage, is designed for people who have a poor credit history.

When you apply for any type of credit, lenders check your credit report to assess your past borrowing behaviour. This helps them predict your future behaviour and determine how risky it is to lend to you. If you have a history of missed or late payments, county court judgments (CCJs), defaults, or bankruptcy, this will negatively impact your credit score and you may be considered a high-risk borrower.

In response to this risk, some lenders offer bad credit mortgages. These are a type of mortgage product for individuals who might struggle to get approved for standard mortgage deals due to their poor credit history.

However, it’s important to know that these types of mortgages often come with higher interest rates and require larger deposits to compensate for the increased risk the lender is taking on. This means that while they can provide a means for someone with poor credit to get a mortgage, they can also be more expensive over the long term.

It’s always recommended to try and improve your credit score as much as possible before applying for a mortgage. Simple steps like making sure you’re on the electoral roll, paying bills on time, and reducing existing debts can make a difference. It can also be helpful to speak with a mortgage broker who specialises in bad credit mortgages, as they can provide advice and potentially help find lenders who are willing to approve your application.

How do ‘bad credit’ mortgages work?

Bad credit mortgages, also known as subprime mortgages, work in a similar way to standard mortgages but are designed specifically for individuals who have a poor credit history. These mortgages are available from lenders who are prepared to take into account applicants whose credit histories might prevent them from receiving standard mortgages.

Here’s a general idea of how bad credit mortgages work:

Application Process: The application process for a bad credit mortgage is similar to that for a regular mortgage. You will need to provide information about your income, outgoings, and debts. The lender will also look at your credit report to understand your credit history.

Risk Assessment: Lenders will consider the risk involved in lending to someone with a bad credit history. If you’ve had problems paying back debts in the past, lenders may view you as a higher risk.

Interest Rates and Fees: Due to the higher risk associated with lending to someone with bad credit, these mortgages typically come with higher interest rates and potentially higher fees. This is the lender’s way of offsetting the potential risk of missed payments or default.

Deposit Requirement: You may need a larger deposit for a bad credit mortgage. The actual amount will depend on the lender’s criteria and your individual circumstances, but it could be 15–30% of the property’s value, or possibly even more.

Mortgage Term: The term of a bad credit mortgage, which is the length of time you have to pay off the loan, can vary. It might be shorter than the terms of some standard mortgages, which means your monthly repayments could be higher.

Improving Credit: If you manage a bad credit mortgage well and make your repayments on time, it can help to improve your credit score. This may increase your chances of qualifying for a standard mortgage with better rates in the future.

Professional Guidance: It can be helpful to speak with a mortgage broker or financial advisor who specialises in bad credit mortgages. They can help you understand your options, navigate the application process, and find a mortgage that suits your circumstances.

It’s crucial to understand that a bad credit mortgage will likely cost more overall due to higher interest rates and potentially higher fees. As with any mortgage, it’s important to ensure that you can afford the repayments before proceeding.

What is bad credit?

Bad credit refers to a poor track record of repaying debts, which is reflected in a low credit score. This is usually the result of past financial behaviour such as consistently late or missed payments on debts, defaulting on loans, filing for bankruptcy, or having county court judgments (CCJs) against you.

In the UK, credit reference agencies (CRAs) such as Experian, Equifax, and TransUnion collect information about your financial behaviour and compile it into a credit report. This report includes details about your credit accounts (like loans, credit cards, and mortgages), payment history, outstanding debts, and any public records such as bankruptcies or CCJs.

Each CRA has its own scoring system, but generally, the scores are broken down into ranges from ‘very poor’ to ‘excellent’. If your score falls into the ‘poor’ or ‘very poor’ category, it’s often referred to as ‘bad credit’. These low scores suggest to potential lenders that you have a history of not managing your debts effectively, making you a higher risk borrower.

Having bad credit can make it more difficult to get approval for new credit, such as personal loans, credit cards, or mortgages. If you are approved, you might face higher interest rates or more stringent terms to offset the lender’s risk.

It’s worth noting that everyone’s credit history is unique, and different lenders have different criteria for what they consider acceptable risk. Therefore, having bad credit does not automatically disqualify you from obtaining credit, but it can make it more challenging. Improving your credit score can help you to gain access to better financial products and interest rates in the future.

How to get a mortgage with bad credit in 2024 

Getting a mortgage with bad credit in 2024 can be a challenge, but it’s not impossible. Here are some steps you could take:

Check Your Credit Report: Before you start the mortgage application process, get a copy of your credit report from a credit reference agency such as Experian, Equifax, or TransUnion. Check it thoroughly for any mistakes or discrepancies that could be dragging down your score. If you find any errors, contact the credit reference agency to have them corrected.

Improve Your Credit Score: While this isn’t a quick fix, taking steps to improve your credit score can make it easier to get a mortgage in the future. This might involve paying your bills on time, paying off outstanding debts, and not applying for new credit in the months leading up to your mortgage application.

Save for a Larger Deposit: Lenders may be more likely to approve your application if you can provide a larger deposit. This reduces the lender’s risk, as it means they’re lending you a smaller proportion of the property’s value. A larger deposit can also get you access to better interest rates.

Consider a Guarantor Mortgage: With a guarantor mortgage, a family member or friend guarantees to cover your mortgage payments if you can’t. This reduces the risk to the lender and could make them more likely to approve your application.

Use a Mortgage Broker: Mortgage brokers have expert knowledge of the market and can help you find lenders who are more likely to approve your application. Some brokers specialise in bad credit mortgages and have relationships with lenders who don’t mind lending to people with poor credit histories.

Consider Specialist Lenders: Some lenders specialise in offering mortgages to people with bad credit. However, these often come with higher interest rates and fees, so you’ll need to make sure the repayments are affordable.

Eligibility criteria

The eligibility criteria for a bad credit mortgage can vary depending on the specific lender, but some common criteria include:

Credit History: Even with a bad credit mortgage, lenders will still check your credit history. They may look at how long it’s been since you had any credit issues, the severity of those issues, and any recent credit activity.

Deposit: You’ll likely need a larger deposit if you’re applying for a bad credit mortgage. The exact amount can vary but could be 15–30% of the property’s value or even more.

Income: You’ll need to prove that you have a stable income and can afford the mortgage repayments. This could involve providing payslips, bank statements, or tax returns. Some lenders may also consider other types of income, like benefits or rental income.

Employment Status: Being in stable, full-time employment could improve your chances of being approved. However, some lenders may consider applicants who are self-employed or have irregular income.

Affordability: As part of the application process, lenders will assess your income against your outgoings to determine if you can afford the mortgage repayments. They’ll look at things like debt, bills, living expenses, and other commitments.

Age: Most lenders have a minimum age requirement, usually 18, and many have a maximum age limit by which the mortgage must be repaid. This can often be around the state retirement age, but can vary between lenders.

Residency: You’ll typically need to be a UK resident to apply for a bad credit mortgage in the UK. Some lenders might have additional requirements or restrictions for non-UK citizens.

Are there specific lenders that specialise in bad credit mortgages?

Yes, there are certain lenders, often referred to as ‘subprime’ lenders, who specialise in offering mortgages to individuals with poor or bad credit histories. These lenders understand that traditional credit scores might not fully reflect an individual’s ability to repay a loan.

While most mainstream banks and building societies might decline mortgage applications from individuals with bad credit, these specialist lenders consider other factors in addition to the credit score, such as employment status, income stability, and the size of the deposit.

Bear in mind that these types of mortgages often come with higher interest rates and require larger deposits. This is due to the perceived higher risk associated with lending to individuals with a history of poor credit management.

It’s always a good idea to improve your credit score as much as possible before applying for a mortgage, which can help secure better terms and lower interest rates. You might want to consider speaking to a financial advisor or mortgage broker who can provide guidance based on your specific circumstances.

Affordability assessment

When applying for a bad credit mortgage, lenders will conduct an affordability assessment. This process allows the lender to determine whether you’ll be able to manage your mortgage repayments, especially considering your past credit issues. Here’s what lenders typically consider:

Income: The lender will examine your income sources. This could include your salary, any bonuses or commission, self-employed earnings, pension income, or income from investments or rentals.

Outgoings: The lender will also look at your regular outgoings, such as bills, living costs (like food, transport, and healthcare), loan repayments, credit card bills, and any other fixed expenses you might have.

Existing Debt: If you have existing debt, such as personal loans, car finance, student loans or credit card balances, the lender will factor these into the affordability assessment. Too much existing debt may impact your ability to manage additional repayments on a mortgage.

Future Changes: The lender may also consider potential changes to your financial situation in the future. For example, they might look at how increases in interest rates could affect your mortgage repayments.

Credit History: Even though you’re applying for a bad credit mortgage, the lender will still consider your credit history. They’ll look at any past defaults, late payments, CCJs, or bankruptcy orders. These could indicate a higher risk and impact the terms of the mortgage offered to you.

Every lender has their own specific criteria and methods for assessing affordability, so this process can vary from one lender to another. It’s important to be as honest and accurate as possible when providing information for an affordability assessment.

Remember, even if a lender indicates that you can afford a certain mortgage amount, you should also consider your own budget and whether the monthly repayments would be manageable for you. It may be beneficial to speak with a financial advisor or mortgage broker who can provide guidance based on your specific circumstances.

What are the interest rates typically like for bad credit mortgages?

Interest rates for bad credit mortgages, also known as subprime mortgages, are typically higher than those for standard mortgages. This is because lending to someone with a history of poor credit is considered a greater risk.

The exact interest rate will vary based on a range of factors including the specifics of the borrower’s credit history, the size of the deposit they’re able to provide, their income, and the specific terms of the mortgage.

As a general rule, the worse your credit score is, the higher the interest rate you can expect to pay. If your credit history includes serious issues such as bankruptcy or repossession, the rates could be considerably higher.

Another point to consider is that many bad credit mortgages may be offered on a variable rate basis, which means the interest rate can change over time.

Despite the higher costs, these types of mortgages can be a stepping stone to improving your credit score and potentially remortgaging to a standard mortgage with better rates in the future.

It’s advisable to shop around, possibly with the help of a mortgage broker, to find the best possible deal. Keep in mind that it’s not just the interest rate you need to consider but also the overall cost of the mortgage, including any fees or charges.

How much can I borrow?

Lenders will consider your income when deciding how much to lend you. Traditionally, lenders might lend up to 4-4.5 times your annual income, but this can vary. Some lenders may offer more, especially if you have a large deposit or your financial situation is otherwise strong.

Remember, even if a lender is willing to offer you a certain loan amount, it’s important to consider whether the monthly repayments will be manageable for you. It can be beneficial to speak with a financial advisor or mortgage broker who can provide guidance based on your specific circumstances.

How much deposit do I need?

The deposit required for a bad credit mortgage can vary greatly depending on the lender and the specifics of your individual situation. However, as a general rule, lenders typically require a larger deposit from borrowers with bad credit.

While it’s possible to find mortgages for people with good credit that require a deposit as small as 5-10% of the property’s value, for a bad credit mortgage, you might be expected to provide a deposit of 15-30% or possibly even more.

The size of the deposit required will depend on factors such as:

    • The severity of your credit issues: More serious credit problems may require a larger deposit.

    • The type of property you’re buying: Some properties are considered higher risk, which might require a larger deposit.

    • The lender’s policies and criteria: Different lenders have different requirements when it comes to deposits.

Keep in mind that providing a larger deposit reduces the lender’s risk and can also help to offset some of the impact of your bad credit history. It could help you to secure a mortgage and may also help you to access better interest rates.

Before making a decision, it might be useful to consult with a mortgage broker or financial advisor who can provide tailored advice based on your specific circumstances.

What documents do I need?

When applying for a mortgage, including a bad credit mortgage, lenders require certain documents to assess your financial status, creditworthiness, and overall eligibility. These may include:
1. Proof of Identity: You’ll usually need a valid passport or driver’s licence.
2. Proof of Address: This could be a recent utility bill, council tax bill, or a bank statement that shows your current address.
3. Proof of Income: If you’re an employee, you’ll need recent payslips (typically the last three months’) and possibly a P60 form, which shows your income and tax paid from the previous year. If you’re self-employed, you may need to provide two to three years’ worth of accounts or tax returns.
4. Bank Statements: Lenders will typically ask for the last three to six months of bank statements. This allows them to verify your income and check your outgoings.
5. Details of Outstanding Debts: If you have any other loans or credit commitments, you’ll need to provide details. This might be included in your bank statements or you may need to provide additional documentation.
6. Credit Report: While you may not need to provide this, it’s a good idea to check your credit report yourself before applying for a mortgage. You can obtain a statutory report from the three main UK credit reference agencies: Experian, Equifax, and TransUnion.
7. Proof of Deposit: You may need to show proof of your deposit and where the funds have come from. This could be savings account statements or a gifted deposit letter, if applicable.
8. Mortgage in Principle: While not a requirement, having a mortgage in principle can make you a more attractive buyer and speed up the process once you’ve found a home you want to buy.

Why should I check my eligibility before applying for a mortgage with bad credit?

Checking your eligibility before applying for a bad credit mortgage is important for several reasons:

Avoiding Further Damage to Your Credit Score: Every time you apply for credit, including a mortgage, the lender performs a hard credit check which leaves a mark on your credit file. Too many hard checks in a short period can negatively impact your credit score. By checking your eligibility first, you can avoid unnecessary applications and protect your credit score from further damage.

Saving Time and Effort: By checking your eligibility, you can filter out mortgage products and lenders who are unlikely to accept your application. This can save you the time and effort of applying to multiple lenders.

Understanding Your Options: Checking your eligibility can give you a clearer understanding of which mortgage products are available to you, helping you make a more informed decision.

Preparation: Checking your eligibility before applying can highlight areas that you might need to work on before you apply, such as improving your credit score or saving for a larger deposit.

Better Planning: Knowing what kind of mortgages you are eligible for can help you plan better. For example, if you know you’re likely to face higher interest rates due to your bad credit, you can factor this into your budgeting.

There are many online tools and services that allow you to check your mortgage eligibility, often for free. These tools usually perform a ‘soft’ search, which doesn’t affect your credit score. However, these tools can only provide an estimate based on the information you provide, and final approval will always be at the discretion of the lender. Always seek professional advice if you’re unsure.

Can I get a mortgage if I have bad credit and no deposit?

Getting a mortgage with both bad credit and no deposit can be extremely challenging.

Mortgages with no deposit, known as 100% mortgages, are rare even for borrowers with excellent credit. These types of mortgages are considered high risk by lenders because they involve lending the entire value of the property. If the borrower defaults, there’s a high risk that the lender will lose money.

If you also have bad credit, this risk is amplified. Lenders may be very reluctant to offer you a mortgage under these circumstances, and those who do may charge very high interest rates to compensate for the increased risk.

However, there might be a few exceptions:

Guarantor Mortgages: If you have a family member or close friend who’s willing to act as a guarantor, you might be able to get a 100% mortgage. The guarantor agrees to cover your mortgage payments if you default. However, this is a significant responsibility and can have serious financial implications for the guarantor.

Family Offset Mortgages: Some lenders offer products where a family member places their savings into an account linked to your mortgage. The savings act as a deposit, but this means the family member won’t have access to their money for a set period.

Shared Ownership Schemes: Some government schemes allow you to buy a share of a property and pay rent on the rest. Over time, you can buy larger shares until you own the entire property. Eligibility criteria vary, and not all schemes are available to people with bad credit.

If you’re struggling to save for a deposit, you may want to look into government schemes such as Help to Buy, or Lifetime ISAs which provide a bonus towards saving for a first home.

Please bear in mind that while these options may make it possible to get a mortgage without a deposit, they may not be suitable for everyone and come with their own risks and costs. Always seek professional advice before making a decision. It’s also worth noting that improving your credit score and saving for a deposit, even a small one, can greatly increase your chances of getting a mortgage and secure better terms.

What is a loan-to-value rate for a bad credit mortgage?

The Loan-to-Value (LTV) ratio is a key concept in mortgage lending, including bad credit mortgages. It’s the ratio between the size of the loan you take out and the value of the property you’re buying. It’s usually expressed as a percentage.

For example, if you’re buying a property worth £200,000 and you have a deposit of £40,000, you would need to borrow £160,000. This would represent an LTV ratio of 80% (because £160,000 is 80% of £200,000).

A lower LTV ratio means that you’re borrowing less in relation to the property’s value. It also means you’ve put down a larger deposit. This reduces the lender’s risk, as they would have a better chance of recouping their money if they had to sell the property following a repossession. Therefore, lower LTV ratios generally lead to more favourable mortgage terms, including lower interest rates.

When it comes to bad credit mortgages, the LTV ratio can be especially important. Given the higher risk associated with lending to individuals with bad credit, many lenders will require a lower LTV ratio, meaning a larger deposit. This can often mean an LTV of 70-85%, or even lower in some cases. So, for a bad credit mortgage, you may need a deposit of 15-30% or more of the property’s value.

However, it’s important to note that the specifics can vary greatly depending on the lender, the severity of the credit issues, and other aspects of the borrower’s financial situation. Always seek professional advice for your specific circumstances.

What issues can impact my credit?

Several issues can impact your credit score negatively. Here are some of the most common ones:

Late or Missed Payments: Late or missed payments on any form of credit (loans, credit cards, mobile phone contracts etc.) are one of the main factors that can negatively impact your credit score. They suggest to potential lenders that you may struggle to manage your financial commitments.

Defaulting on a Loan or Credit Agreement: If you fail to repay a loan or meet the terms of a credit agreement, this is known as a default. Defaults are a serious black mark on your credit history and can significantly lower your credit score.

County Court Judgements (CCJs): If a lender takes you to court over an unpaid debt and wins, you will receive a CCJ. This will have a serious impact on your credit score and can make it much harder to access credit in the future.

Bankruptcy or Individual Voluntary Arrangements (IVAs): These are legal arrangements designed to help people in serious debt, but they will also significantly lower your credit score and stay on your credit report for at least six years.

High Levels of Existing Debt: If you already have a lot of debt, lenders may be concerned about your ability to manage more. High credit utilisation (the percentage of your available credit that you’re using) can also negatively impact your score.

Frequent Applications for Credit: Every time you apply for credit, a hard search is performed on your credit report. Multiple applications in a short time frame can suggest financial stress and can lower your credit score.

Financial Ties to People with Bad Credit: If you hold a joint account or credit agreement with someone who has poor credit, this could also impact your score.

Being on the Electoral Roll: Not being registered on the electoral roll can negatively impact your credit score as it’s more difficult for credit reference agencies to verify your identity and address.

Remember that different credit reference agencies may score differently, so a ‘poor’ score with one agency might be considered ‘fair’ with another. It’s advisable to check your credit report regularly to understand and manage your credit health.

How does bad credit affect a mortgage? 

Having bad credit can significantly affect your ability to get a mortgage in a number of ways:

Approval Chances: Your chances of being approved for a mortgage can decrease if you have bad credit. Lenders may see you as a higher risk and could be less likely to lend to you.

Interest Rates: If you’re approved for a mortgage with bad credit, you’re likely to face higher interest rates. Lenders increase rates to compensate for the increased risk of lending to someone with bad credit. This means your monthly payments could be higher, and the loan will cost you more in the long term.

Loan Amount: Lenders may offer you a smaller loan if you have bad credit. This could limit your options when it comes to buying a property.

Deposit Requirements: Lenders may require a larger deposit if you have bad credit. This reduces the risk for the lender, but it can make it more difficult for you to secure a mortgage, especially if you have limited savings.

Loan Terms: Bad credit can also impact the terms of the mortgage. For example, some lenders may only offer shorter loan terms to borrowers with bad credit. This could result in higher monthly payments.

Limited Lender Options: Not all lenders offer mortgages to people with bad credit. This could limit your options and make it more difficult to shop around for the best deal.

Insurance Costs: If you’re required to have mortgage insurance, your premiums may be higher if you have bad credit.

The exact impact of bad credit on a mortgage can depend on a variety of factors, including the specifics of your credit history, the amount of money you have saved for a deposit, your income, and the policies of the specific lenders you’re considering.

It’s also worth noting that, while having bad credit can make getting a mortgage more difficult, it’s not impossible. Some lenders specialise in working with borrowers who have bad credit. Consulting with a mortgage broker or financial advisor can help you understand your options.

How to find bad credit mortgage lenders online

Finding bad credit mortgage lenders online requires some research and due diligence. Here are some steps you can follow:

Search for Specialised Lenders: There are lenders who specialise in providing mortgages to individuals with bad credit. You can find these lenders by using search terms such as “bad credit mortgage lenders UK” or “mortgages for poor credit.”

Use Online Comparison Sites: Comparison websites can be a good starting point to compare various mortgage products and lenders that accommodate people with bad credit. These sites allow you to input your personal information and search for suitable mortgages. Keep in mind, the rates shown are representative and may not be the exact rate you’ll get.

Check Lender Websites Directly: If you come across lenders that advertise mortgages for people with bad credit, visit their websites directly to get more information about their products, rates, fees, and application process.

Visit Online Financial Forums: Online forums can be a good source of information. You can find first-hand experiences from other people who have applied for bad credit mortgages, including their experiences with different lenders.

Online Mortgage Brokers: Online mortgage brokers have access to a wide range of mortgage products, including those aimed at people with bad credit. They can guide you to the most suitable lenders based on your personal circumstances.

Check Lender Reviews and Ratings: Look for reviews and ratings of lenders online to get a sense of their reputation. This can be a good way to gauge the experiences of other customers, but remember to take individual reviews with a grain of salt and look for overall trends instead.

Remember that while finding a lender online can be convenient, it’s also important to be wary of potential scams. Be cautious of any lender who guarantees approval without a credit check, asks for an upfront fee, or has a website that doesn’t start with “https://” (which indicates it’s secure). Always make sure any lender you’re considering is authorised and regulated by the Financial Conduct Authority (FCA).

Does having bad credit make your mortgage more expensive?

Yes, generally speaking, having bad credit can make your mortgage more expensive. This is due to the following factors:

Higher Interest Rates: Lenders typically charge higher interest rates to borrowers with bad credit. This is to compensate for the increased risk of default. Higher interest rates mean that the overall cost of the mortgage (the amount you pay back in addition to the original loan amount) will be higher.

Larger Deposit Requirements: Some lenders may require a larger deposit if you have bad credit. While this doesn’t make the mortgage itself more expensive, it does mean that you’ll need to come up with a larger amount of money upfront.

Higher Lender Fees: Some lenders may charge higher fees, such as arrangement or booking fees, to borrowers with bad credit.

Higher Insurance Premiums: If you’re required to get mortgage insurance, you may have to pay higher premiums if you have bad credit.

It’s important to note that while bad credit can make a mortgage more expensive, there are steps you can take to improve your credit score and potentially secure more favourable mortgage terms in the future. These can include making sure you pay all your bills on time, reducing your overall debt levels, and correcting any errors on your credit report.

Furthermore, working with a mortgage broker who specialises in bad credit mortgages can also be beneficial. They will have an understanding of the lending criteria of various mortgage providers and can help you find a lender that’s most likely to accept your application and offer you more competitive rates.

Should I apply for a mortgage with bad credit?

Whether or not to apply for a mortgage with bad credit is a decision that should be made based on your individual circumstances. Here are a few things to consider:

Urgency: If you urgently need to buy a home and renting or other options aren’t viable, you might choose to pursue a bad credit mortgage. However, if it’s not urgent, you might want to spend some time improving your credit score before applying.

Current Credit Score: If your credit issues were in the distant past and your recent credit behaviour has been good, lenders may be more forgiving. However, if you’ve had recent credit issues, it might be worth waiting until you’ve had a period of good credit behaviour before applying.

Improving Your Credit Score: Remember that every time you apply for a mortgage and are denied, it can impact your credit score. So, if you’re uncertain about your eligibility, it might be better to hold off and work on improving your credit score.

Interest Rates and Fees: Bad credit mortgages typically come with higher interest rates and fees. You should carefully consider if the higher costs associated with a bad credit mortgage are affordable and worthwhile for you in the long run.

Down Payment: Lenders may require a larger down payment if you have bad credit. If you can afford a substantial down payment, this could make you a more attractive candidate despite your credit history.

Professional Advice: It’s usually a good idea to speak to a financial advisor or a mortgage broker, particularly one who specialises in bad credit mortgages. They can provide guidance based on your personal circumstances.

Can I get a 95% mortgage with bad credit?

Getting a 95% mortgage, which refers to a mortgage with a 95% loan-to-value (LTV) ratio, can be challenging if you have bad credit.

A 95% LTV mortgage means you are borrowing 95% of the property’s value and only providing a 5% deposit. These types of mortgages are considered high risk by lenders because they involve lending the majority of the property’s value. If the borrower defaults, there’s a high risk that the lender will lose money.

If you also have bad credit, this risk is amplified. Lenders may be very reluctant to offer you a mortgage under these circumstances, and those who do may charge very high interest rates to compensate for the increased risk.

Most lenders typically require lower LTV ratios (which means larger deposits) from borrowers with poor credit histories. Therefore, while it’s not impossible, getting a 95% mortgage with bad credit can be difficult.

However, certain government schemes, like the Help to Buy scheme or a shared ownership scheme, may make high LTV mortgages more accessible, even for individuals with bad credit. It’s always worth researching these options or consulting with a financial advisor or a mortgage broker to explore all the potential avenues available to you.

Also remember, improving your credit score and saving for a larger deposit, can greatly increase your chances of getting a mortgage and secure better terms.

Why is it harder to get a mortgage with bad credit?

Obtaining a mortgage with bad credit is more difficult for a number of reasons:

1. Lenders use credit scores to assess a borrower’s creditworthiness, or the likelihood that they will repay the borrowed money as agreed. A bad credit score can indicate that you’ve had difficulties managing credit in the past, which makes you a higher risk to the lender.

2. Statistics show that individuals with poor credit histories are more likely to default on loans. As a result, lenders are more cautious when it comes to approving mortgages for individuals with bad credit.

3. Lenders are also bound by regulations to ensure that they lend responsibly. This means they must conduct thorough affordability and credit checks and may be unable to offer loans to individuals who pose too much of a risk.

4. A mortgage is a secured loan, meaning the property serves as collateral. If a borrower with bad credit defaults on the loan, the lender may not recover the full amount owed through the sale of the property, especially in a market downturn. This potential loss scenario makes lending to borrowers with bad credit riskier.

5. Bad credit may indicate instability in a person’s financial situation. This instability, coupled with the long-term nature of a mortgage, heightens the risk for the lender.

However, while it can be more challenging to secure a mortgage with bad credit, it’s not impossible. Certain lenders specialise in offering ‘bad credit mortgages.’ It’s advisable to consult with a mortgage broker or financial advisor, who can guide you on the best path based on your individual circumstances.

Can I remortgage with bad credit?

Yes, it is possible to remortgage with bad credit, but it can be more challenging and potentially more expensive due to the increased risk perceived by lenders. Here are a few key points to consider:

Interest Rates: If your credit score has dropped since you took out your initial mortgage, you may find that the interest rates available to you are higher than what you’re currently paying. This could make remortgaging less financially beneficial.

Lender Options: Not all lenders will offer remortgage options to individuals with bad credit, which could limit your options. There are, however, some lenders that specialise in offering products to those with less than perfect credit.

Equity: If you have a significant amount of equity in your property, this could improve your chances of being approved for a remortgage despite having bad credit. This is because the lender’s risk is reduced if you own a larger portion of the property outright.

Affordability: Lenders will look at your income, outgoings, and overall affordability as well as your credit score. If your financial situation has improved since your last mortgage application, this could help counterbalance the impact of a bad credit score.

Professional Advice: If you’re considering remortgaging and have bad credit, it can be beneficial to seek advice from a mortgage broker or financial advisor, especially one who specialises in bad credit remortgages.

Improving Your Credit Score: Before applying to remortgage, it could be beneficial to take steps to improve your credit score, such as paying bills on time, reducing outstanding debts, and correcting any errors on your credit report.

What are the advantages of a bad credit mortgage?

While having bad credit can make it more difficult to obtain a mortgage, there are some potential advantages to taking out a bad credit mortgage:

Opportunity to Own a Home: A bad credit mortgage may provide you with the opportunity to buy a property, even if your credit history is less than perfect. This can be a significant advantage if you’re eager to move out of renting and start building equity in a home.

Chance to Rebuild Credit: Regularly making your mortgage payments on time can help you rebuild your credit history. It’s essential to maintain good financial habits, as this will positively impact your credit score over time.

Potential for Future Refinancing: If you manage your bad credit mortgage well and improve your credit score over time, you might be able to refinance your mortgage in the future. This could give you access to more favourable interest rates and terms.

Specialised Lenders: There are lenders who specialise in bad credit mortgages and who understand your situation. They can often provide advice and loan products tailored to your circumstances.

However, it’s important to note that bad credit mortgages typically come with higher interest rates and may require a larger deposit than traditional mortgages. It’s crucial to ensure you can afford the repayments before committing to a mortgage. A financial advisor or mortgage broker can provide valuable guidance when considering a bad credit mortgage.

What are the disadvantages of taking out a mortgage with bad credit?

While a bad credit mortgage can offer opportunities for home ownership to those with imperfect credit histories, there are several potential disadvantages to consider:

Higher Interest Rates: Mortgages for people with bad credit typically come with higher interest rates than those offered to individuals with good credit. This means you’ll end up paying more over the term of the loan.

Larger Deposit Requirement: Lenders often require a larger deposit from borrowers with bad credit to offset the increased risk. This can make it harder to get onto the property ladder.

Less Favourable Terms: Alongside higher interest rates, you may find that other terms of the mortgage are less favourable. This might include higher fees or less flexibility in repayment options.

Limited Lender Options: Not all lenders offer mortgages to people with bad credit, which could limit your options and make it more challenging to find a mortgage that suits your needs.

Potential for Negative Financial Impact: If you’re unable to keep up with the higher repayments, you could further damage your credit score or, in a worst-case scenario, risk foreclosure on your home.

Future Financial Opportunities: A bad credit mortgage could affect your ability to access other forms of credit, as lenders may see you as overextended.

Are mortgages for people with bad credit still available?

Mortgages for people with bad credit were still available. These are often referred to as “subprime” mortgages or “bad credit mortgages.”

Lenders that offer these types of mortgages specialise in working with individuals who have less-than-perfect credit scores. They assess the risk differently than traditional lenders and are willing to consider other factors beyond your credit score when making a lending decision.

However, these mortgages often come with higher interest rates and may require a larger deposit to compensate for the additional risk that a borrower with a poor credit history might pose.

Please bear in mind that the availability of these types of mortgages can change based on a variety of factors, including economic conditions and lending regulations.

Therefore, it’s recommended to seek up-to-date advice from a mortgage broker or financial advisor. They can provide current information and help guide you towards lenders who may be willing to offer a mortgage based on your individual circumstances, even with a bad credit history.

Can I get a joint mortgage with bad credit?

Yes, it’s possible to get a joint mortgage if one or both applicants have bad credit, but it can be more challenging. Here are some factors to consider:

1. When you apply for a joint mortgage, lenders will consider the credit history of both applicants. If one applicant has bad credit, it could potentially impact the overall approval of the mortgage or the terms of the mortgage offered.

2.  Lenders will also consider both applicants’ income and outgoings when determining whether to approve the mortgage. If the joint income is sufficient and reliable, it could increase the chances of approval.

It’s important to be aware that if one person on the mortgage defaults, the other person is still fully responsible for the debt. If payments are not made, both parties’ credit ratings could be further affected and the home could be at risk of repossession.

Is it easier to get a shared ownership mortgage if I have bad credit? 

Shared ownership schemes can make home ownership more accessible for people who might otherwise struggle to get onto the property ladder, including those with bad credit. In a shared ownership scheme, you buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is owned by the local housing association.

However, whether it’s easier to get a shared ownership mortgage if you have bad credit can depend on various factors. As you’re only buying a portion of the property, the amount you need to borrow will be less than if you were buying outright. This could potentially make a mortgage more affordable and increase your chances of approval. 

Not all lenders offer mortgages for shared ownership schemes, so your choice of lenders may be more limited. You’ll still need to pass affordability checks. The housing association will also typically have its own eligibility criteria that you’ll need to meet.

Will a mortgage lender check my credit history?

es, mortgage lenders will typically check your credit history when you apply for a mortgage. This is an essential part of the mortgage application process as it helps lenders assess your creditworthiness, or your ability and reliability to repay the loan. Here’s why it’s important:

Credit Score: Your credit score gives lenders an at-a-glance view of your credit risk. A high score indicates that you’ve managed credit well in the past, while a low score could suggest you’ve had difficulties.

Repayment History: Your credit report shows how you’ve managed credit in the past, including whether you’ve made loan and credit card payments on time. Late or missed payments can be a red flag to lenders.

Current and Past Debts: Lenders look at the amount of debt you currently have and how much credit you’ve used in the past to help assess whether you can afford to take on a new loan.

Public Records: Your credit report may include public records such as bankruptcies or CCJs (County Court Judgments), which can significantly impact your ability to secure a mortgage.

Length of Credit History: Lenders may also look at the length of your credit history. A longer history can be beneficial if you’ve consistently managed your credit well.

Multiple Credit Applications: If you’ve applied for multiple credit accounts in a short period, this could indicate financial stress and may concern lenders.

The credit check is usually done when you apply for a mortgage, but lenders might also do additional checks close to the completion date, especially if there’s a significant gap in time.

Before you apply for a mortgage, it can be a good idea to check your credit report yourself to understand your credit status and correct any errors. If your credit history is poor, you might want to consider ways to improve it before applying, or consult with a financial advisor or mortgage broker for guidance.

What’s the lowest credit score for a mortgage?

Credit scores in the UK can be a bit different from those in other countries because the UK has three major credit reference agencies – Experian, Equifax, and TransUnion – and each has its own scoring system.

Here’s a rough guide on credit scores:

  • Experian: Scores range from 0-999, with a good score considered to be above 700.
  • Equifax: Scores range from 0-700, with a good score considered to be above 420.
  • TransUnion (formerly Callcredit): Scores range from 0-710, with a good score considered to be above 604.
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It’s important to note, however, that lenders don’t solely base their decision on these scores. They have their own criteria and will look at many factors, including your income, outgoings, and credit history. Therefore, there isn’t a specific ‘lowest’ score for obtaining a mortgage in the UK.

That being said, a lower credit score could limit your mortgage options, increase your interest rates, and require a higher deposit. If you’re concerned about your credit score, you may want to speak with a mortgage broker or financial advisor, particularly one who specialises in bad credit mortgages, to understand your options. It’s also often recommended to improve your credit score, if possible, before applying for a mortgage.

Can I remortgage to consolidate debt if I have bad credit?

Yes, it is possible to remortgage to consolidate debt even if you have bad credit, but it can be more challenging and there are several factors you should consider:

Lender Willingness: Not all lenders will be willing to offer a remortgage to individuals with bad credit, especially if the purpose is to consolidate other debts. However, some specialist lenders cater to those with less-than-perfect credit histories.

Equity: If you have built up significant equity in your home, this might make lenders more willing to offer a remortgage. Lenders often see borrowers with more equity as less risky.

Higher Rates and Fees: You’re likely to be offered higher interest rates and potentially higher fees if you have bad credit. This means remortgaging could end up costing you more in the long run.

Affordability: If your current financial situation and the level of your debts mean you might struggle to meet the higher repayments, lenders may be less likely to approve a remortgage.

Secured Debt: When you remortgage to consolidate debts, you’re essentially turning unsecured debt into secured debt. If you cannot keep up the repayments, your home could be at risk.

Given these factors, it’s crucial to get advice from a financial advisor or mortgage broker before deciding to remortgage to consolidate debt, especially if you have bad credit. They can help you weigh up the pros and cons based on your personal circumstances and potentially guide you to suitable lenders.

Does having bad credit make your mortgage more expensive?

Yes, having bad credit can often make your mortgage more expensive. Here’s why:

Higher Interest Rates: If you have bad credit, lenders may see you as a higher risk, which could result in them charging higher interest rates on your mortgage. Over the term of the mortgage, these higher rates can add up to a significant amount of additional interest.

Larger Deposit: Lenders may require a larger deposit from borrowers with bad credit. This is another way for them to manage the risk they are taking on. While this is a larger upfront cost rather than an ongoing one, it still makes the mortgage more expensive in terms of the initial outlay.

Mortgage Insurance: If you’re able to secure a mortgage with bad credit, you may be required to pay for mortgage insurance, which protects the lender if you default on the loan. This is an additional cost that borrowers with better credit may not have to pay.

Less Competitive Products: Often, the most competitive mortgage products with the lowest interest rates and best terms are reserved for borrowers with good credit. If you have bad credit, these options may not be available to you.

So while it is possible to get a mortgage with bad credit, the terms are often less favourable, and the overall costs can be higher. For this reason, it can be a good idea to try and improve your credit before applying for a mortgage. A financial advisor or a mortgage broker can provide guidance on the best approach for your specific circumstance

How far back do mortgage lenders look at credit history?

When assessing your eligibility for a mortgage, lenders will usually look at your credit history for the past six years. This is because six years is the maximum amount of time that most negative information stays on your credit report in the UK.

While negative marks remain on your credit report for six years, the impact they have on your credit score and a lender’s decision typically lessens over time, especially if you’ve demonstrated more recent responsible credit behaviour.

How do I check my credit score?

Checking your credit score in the UK is relatively straightforward. Here are the steps you’ll need to follow:

Choose a Credit Reference Agency: There are three main credit reference agencies in the UK: Experian, Equifax, and TransUnion. Each of these agencies collects information about your financial history and uses it to calculate a credit score. You may want to check your score with more than one agency, as the information they hold may vary and different lenders may use different agencies.

Sign Up for an Account: You’ll need to sign up for an account with the credit reference agency or agencies of your choice. This usually involves providing some basic personal information.

Verify Your Identity: The agency will need to verify your identity to ensure that they are providing the information to the correct person. This process varies by agency but usually involves answering questions about your financial history.

Access Your Credit Score and Report: Once your identity is verified, you should be able to access your credit score and report online. This will give you an overview of your credit history and tell you where you stand in terms of creditworthiness.

Some credit reference agencies may offer a free service to access your credit score, while others may charge a fee or offer it as part of a subscription service. It’s also important to be aware that each agency calculates credit scores slightly differently, so your score may vary from one agency to another.

What is the difference between bad credit history and no credit history? 

Bad credit history and no credit history are two different situations that can both pose challenges when trying to obtain credit, such as a mortgage. Here’s how they differ:

Bad Credit History: This refers to a track record of not managing previous credit agreements well. This could include late or missed payments, defaults, County Court Judgements (CCJs), Individual Voluntary Arrangements (IVAs), bankruptcy, or having too much debt. Each of these factors can contribute to a lower credit score, signaling to lenders that you may be a higher risk borrower.

No Credit History: This refers to not having any record of credit agreements. If you’ve never had a credit card, loan, mortgage, or even a utility bill in your name, there’s a chance you have no credit history. While you may think this is a good thing because you’ve never been in debt, it can actually make getting credit more difficult. This is because lenders have no way of assessing how reliable you are at repaying debt. In other words, no credit history provides no evidence that you’re a low-risk borrower, which can make lenders hesitant.

So, while they pose different challenges, both bad credit and no credit can make it more difficult to get approved for credit. If you have bad credit, the focus should be on improving your credit score over time, which can involve repaying debts on time, reducing the amount of debt you owe, and carefully managing your credit. If you have no credit, the focus should be on slowly building a credit history, which can involve taking on small amounts of credit and repaying it on time to show potential lenders that you can manage debt responsibly.

How your credit score can help you get a mortgage

Your credit score plays a crucial role in your ability to get a mortgage. It’s one of the key factors that lenders consider when deciding whether to lend to you, how much to lend, and at what interest rate. Here’s how a good credit score can help you get a mortgage:

1. A good credit score can increase your chances of being approved for a mortgage. Lenders see borrowers with good credit scores as less risky because they have a history of managing their debts responsibly.

2. Your credit score can also affect the interest rate you’re offered on a mortgage. Borrowers with higher credit scores usually qualify for lower interest rates because they’re seen as less likely to default on the loan.

3. A good credit score might also help you secure a larger mortgage loan. Lenders may be willing to lend more to borrowers with strong credit histories because they’re considered more likely to repay the debt.

4. Certain types of mortgages might only be available to those with good credit. For instance, some lenders offer special mortgage products with advantageous terms for borrowers with excellent credit.

5. Good credit not only improves your chances of mortgage approval, it can also speed up the approval process. Lenders might be able to approve your application more quickly if they don’t have to spend as much time scrutinising your credit history.

Can a first-time buyer with bad credit get a mortgage?

Yes, a first-time buyer with bad credit can still get a mortgage, but it might be more challenging. The options may be more limited and the interest rates could be higher than for someone with a better credit score. The better your credit score, the better the mortgage terms you’ll be offered. Paying bills on time, reducing debt, not applying for new credit, and checking your credit report for errors can all help to improve your score over time.

Demonstrating a stable employment history and steady income can make you a more attractive prospect to lenders. They’ll want to see that you have a reliable income stream to cover your mortgage payments.

Can a self-employed person get a mortgage with bad credit?

Yes, it’s possible for a self-employed person to get a mortgage even with bad credit, but it can be more challenging. Not only do you have to prove your income as a self-employed individual, but you also have to navigate the additional challenges posed by a bad credit score.

As a self-employed individual, you’ll need to provide more evidence of your income than someone who is traditionally employed. This typically means providing two years of accounts or tax returns, although some lenders might accept less.

Can a key worker with bad credit get a mortgage?

Yes, a key worker with bad credit can still get a mortgage, but like anyone with a poor credit history, it might be more challenging. Key workers (e.g., those in healthcare, education, law enforcement, etc.) often have access to specific mortgage products or schemes designed to make homeownership more affordable for them. However, a poor credit history could limit these options.

Some lenders specialise in providing mortgages to individuals with bad credit. Their rates might be higher than traditional lenders, but they might be more willing to consider your application.

Check whether there are any government or local schemes available specifically for key workers. Some might provide help with deposits or offer discounted property prices.

Can I get a mortgage with bad credit if I’m over 50?

Yes, you can get a mortgage with bad credit if you’re over 50, but there might be additional challenges to consider. Lenders not only assess applicants based on their credit history but also their age and the anticipated term of the mortgage. Here’s why:

Age Considerations: Many lenders have upper age limits at the end of the mortgage term (typically between 70-85 years). If you’re over 50, this might reduce the term length for which you’re eligible, which could result in higher monthly payments.

Credit Score: As with all applicants, your credit score will play a significant role in the type of mortgage you can secure. Improving your credit score can help you access more favourable mortgage products.

Income in Retirement: If your mortgage term will extend into retirement, lenders will want evidence that you’ll have sufficient income to continue making repayments.

Should I buy a house with bad credit?

Whether you should buy a house with bad credit depends largely on your personal circumstances and the specific terms of the mortgage you’d be able to secure.

Before buying a house, consider whether you can truly afford the ongoing costs, including mortgage repayments, maintenance, insurance, and property taxes. If your credit is poor because of past financial difficulties, you’ll want to be confident that you won’t struggle to keep up with the costs.

Consider the current state of the housing market. Are house prices rising rapidly in your area? If so, waiting to improve your credit score could potentially cost you more if house prices increase in the meantime.

In some cases, it might make more sense to rent while you work on improving your credit score. Consider the cost of renting versus buying in your area, as well as the flexibility each offers.

Can I get a remortgage if I have bad credit?

Yes, you can potentially get a remortgage even if you have bad credit, although it may be more challenging and your options may be more limited.

Remortgaging is the process of getting a new mortgage on a property you already own, either to replace your existing mortgage or to borrow money against your property.

You’ll need to demonstrate that you can afford the repayments on the new mortgage. This can involve providing proof of income and information about your monthly expenses.

If your credit score has declined since you took out your original mortgage, lenders will want to see that your circumstances have improved or that there was a good reason for the difficulties you’ve faced.

Is it possible to get a mortgage with no deposit if I have bad credit?

In the UK, most lenders require a minimum deposit to consider a mortgage application, often around 5-15% of the property’s value. This requirement can increase to 15-20% or more for individuals with bad credit. The deposit serves as a form of security for the lender, showing your commitment to the loan and reducing their risk.

Moreover, lenders consider your credit history when determining your eligibility for a mortgage. Bad credit can indicate a higher risk of default, making lenders less likely to approve your application or potentially leading to higher interest rates and stricter terms if you are approved.

However, there are a few exceptions. For instance, some government schemes like the Help to Buy program or shared ownership might allow for smaller deposit amounts, but these typically still require some amount of deposit and good credit history.

Can I get a mortgage if my partner has bad credit?

Yes, it’s possible to get a mortgage if your partner has bad credit. When you apply for a joint mortgage, lenders will typically check the credit history of both applicants. If one applicant has bad credit, it may limit the lenders who are willing to lend to you, or it could result in higher interest rates.

Before applying for a mortgage, you could focus on improving your partner’s credit score. This could involve paying off debts, making sure all bills are paid on time, not applying for additional credit, and correcting any errors on their credit report.

Can I get a mortgage if my house was repossessed?

Yes, it is possible to get a mortgage after a repossession, but it can be significantly more challenging and may take time. A repossession can severely impact your credit score and signal to lenders that you’ve had serious difficulties with loan repayment in the past. 

A repossession will damage your credit score, but you can rebuild it over time. Ensuring all other credit commitments are met on time, paying down debt, and not applying for too much new credit can help improve your score.

The more time that has passed since the repossession, the better your chances of securing a mortgage. Lenders may be more forgiving if the repossession was several years ago and you can demonstrate that you’ve since improved your financial situation.

What options do I have if I’m denied a mortgage due to bad credit?

If you’re denied a mortgage due to bad credit, there are still several options you can explore:

Improve Your Credit Score: This is often the most effective strategy. You can improve your credit score over time by paying all bills on time, reducing your overall debt, keeping credit utilisation low, and not applying for new credit frequently. Also, review your credit report for any inaccuracies that could be negatively impacting your score.

Save for a Larger Deposit: Saving more for a down payment can increase your chances of getting a mortgage. A larger deposit reduces the lender’s risk and can make them more likely to approve your application.

Consider a Co-signer or Guarantor: If someone with good credit is willing to co-sign your mortgage or act as a guarantor, this might help you secure a mortgage. However, this person must be willing and able to take on the responsibility of the loan if you default on the repayments.

Check Specialist Lenders: Some lenders specialise in offering mortgages to those with bad credit. While these mortgages often come with higher interest rates, they can be an option if other avenues are not possible.

Credit-builder Loans or Credit Cards: Some companies offer products designed to help people build or repair their credit. These might be an option to consider, but make sure you fully understand the terms and conditions before proceeding.

Consult a Mortgage Broker: A mortgage broker can give you advice tailored to your specific situation, and they may have knowledge of lenders who are more likely to approve your application.

Are there extra fees or costs associated with bad credit mortgages?

Yes, there can be extra fees and costs associated with bad credit mortgages. Mortgages for those with bad credit are often seen as higher risk by lenders. To offset this risk, they might charge higher interest rates and fees. Here are some of the potential additional costs:

Higher Interest Rates: The most significant cost of a bad credit mortgage is often a higher interest rate. Over the term of the mortgage, this can add up to a substantial amount.

Higher Deposit: You may need to put down a larger deposit to secure a mortgage if you have bad credit. This isn’t a fee per se, but it does mean you’ll need to save more money upfront.

Arrangement Fees: These are fees charged by the lender for setting up the mortgage. For a bad credit mortgage, these fees may be higher.

Broker Fees: If you use a mortgage broker who specialises in bad credit mortgages, they may charge a fee for their services.

Higher Insurance Premiums: If the lender requires you to have mortgage insurance, this could be more expensive if you have bad credit.

Early Repayment Charges: Some lenders might impose hefty penalties if you try to repay the mortgage ahead of schedule.

These potential extra costs underscore the importance of understanding all the terms and conditions of your mortgage before you agree to it. You may want to seek advice from a mortgage broker or financial advisor to ensure you’re fully aware of all the costs involved and how they will impact your finances both now and in the future.

Can I get a mortgage with any bad credit issues?

Obtaining a mortgage with bad credit can be more challenging, but it is not impossible. However, each type of credit issue can have a different impact on your mortgage application, and individual lenders will also have their specific criteria. Here’s a more detailed explanation:

No Credit History: Having no credit history, or being ‘credit invisible’, can make it more difficult to secure a mortgage because lenders have no track record to evaluate your likelihood of paying back the loan. To build a credit history, you could consider opening a credit card, using it for small purchases, and paying it off in full every month.

Low Credit Score: A low credit score can limit your mortgage options, but it doesn’t completely rule out your chances. Some lenders specialise in offering products to those with low credit scores, although these often come with higher interest rates.

Late Payments: Late payments can negatively impact your credit score and might be seen as a red flag by mortgage lenders, but their impact often depends on their severity and frequency. One or two late payments may not have a huge impact, but a consistent pattern of late payments will likely make securing a mortgage more difficult.

Missed Mortgage Payments: Missed mortgage payments are taken seriously by lenders and could significantly impact your ability to secure another mortgage. However, the more time that has passed since the missed payments, the less they may affect your application.

Defaults: Defaults on previous credit agreements can make obtaining a mortgage more difficult, but it’s not impossible. Lenders will consider when the default happened, the reasons behind it, and whether it’s been resolved.

CCJs (County Court Judgments): A CCJ will significantly affect your credit score and ability to get a mortgage. However, some lenders may still consider you if a substantial period has passed since the CCJ was issued and it has been settled.

IVAs (Individual Voluntary Arrangements): An IVA will significantly affect your ability to secure a mortgage as it indicates you have had serious debt problems. However, if several years have passed since the IVA was completed, some lenders might consider you.

Debt Management Plan Mortgage: If you’re on a Debt Management Plan (DMP), it suggests to lenders that you’ve had difficulties managing your debt. Some lenders might consider you if the DMP is in the past and your financial management has improved since.

Repossessions: Previous property repossessions are serious adverse credit events, but some specialist lenders might consider you if enough time has passed and you’ve demonstrated improved financial behaviour since the event.

Bankruptcy: Bankruptcy is considered one of the most severe forms of adverse credit. Typically, you’ll need to wait several years after you’ve been discharged from bankruptcy before lenders will consider your application.

Payday Loans: Many lenders view payday loans as an indication of poor money management. Even if the loan is paid off, it can still affect your ability to secure a mortgage.

Multiple Credit Problems: Multiple credit issues can significantly affect your chances of securing a mortgage, but some specialist lenders may consider your application based on how recent and severe the problems are.

It’s essential to remember that even with these credit issues, each lender has different criteria, and some specialise in helping those with bad credit. Additionally, working to repair your credit, saving for a larger down payment, or seeking professional advice from a mortgage broker could improve your chances. Always consider all of your options and choose a mortgage that is affordable and suits your financial situation.

How to increase your chances of getting a mortgage if you have bad credit 

If you have bad credit, getting a mortgage can be more challenging but it’s not impossible. Here are some strategies that might help increase your chances:

Improve Your Credit Score: Take steps to improve your credit score. This can include paying all your bills on time, reducing your level of debt, not applying for new credit unless necessary, and rectifying any errors on your credit report.

Save for a Larger Deposit: Having a larger deposit can help offset the risk the lender takes on with your bad credit. It also decreases the loan-to-value ratio (LTV), which can improve your chances of approval.

Stable Income and Employment: Demonstrate a steady income and stable employment history. Lenders will feel more comfortable if they see you’ve been consistently earning and that your job situation is stable.

Reduce Your Debt: If you have high levels of existing debt, lenders might be worried about your ability to manage additional repayments. Reducing your debt can improve your debt-to-income ratio and make you a more attractive borrower.

Apply with a Guarantor: If you’re struggling to get approved, you might want to consider applying with a guarantor. This is someone who agrees to make the repayments if you can’t. It can be a useful option, but it’s a significant responsibility for the guarantor.

Work with a Specialist Lender: Some lenders specialise in offering mortgages to people with bad credit. While their rates might be higher, they are often more willing to consider applications from people in your situation.

Speak to a Mortgage Broker: A mortgage broker who has experience with bad credit applications can provide valuable guidance. They will know which lenders are likely to accept your application and can provide advice on how to improve your chances.

Can a mortgage broker help with bad credit?

Yes, a mortgage broker can be especially helpful if you’re trying to get a mortgage with bad credit. Here’s how they can assist:

Expertise: Mortgage brokers understand the market well, including which lenders are more likely to accept applications from people with bad credit. They can help match you with these lenders, saving you time and effort.

Tailored Advice: Brokers can provide advice tailored to your specific situation. They can suggest ways to improve your credit, advise you on how much to save for a deposit, and guide you on other aspects of the mortgage application process.

Access to a Range of Lenders: Mortgage brokers have access to a wide range of lenders, including some that don’t directly deal with consumers. Some of these lenders may specialise in mortgages for people with bad credit.

Application Process: Brokers can help you through the mortgage application process, assisting you in filling out forms and gathering necessary documentation. Their experience can help ensure that you present your case in the best possible way.

Negotiations: A mortgage broker can potentially negotiate better terms on your behalf, even with bad credit. They can liaise with lenders and underwriters to explain any bad credit issues and argue why you should be considered despite your credit history.

Protection: In the UK, mortgage brokers must be authorised and regulated by the Financial Conduct Authority (FCA). This gives you some degree of protection. If the advice you receive is not suitable, you have the right to complain and potentially receive compensation.

So, while a mortgage broker can’t guarantee that you’ll get a mortgage if you have bad credit, their knowledge, experience, and relationships with a variety of lenders can significantly improve your chances.

FAQs

Does applying for multiple mortgages hurt my credit score even more?

Yes, applying for multiple mortgages can negatively affect your credit score. Each time you apply for a mortgage, the lender will conduct a hard inquiry on your credit report to assess your creditworthiness, and this can cause a small, temporary drop in your credit score. If there are numerous hard inquiries within a short period, it can signal to lenders that you are a higher-risk borrower, which may further lower your credit score.

How long does a poor credit history affect my mortgage eligibility?

In the UK, most negative information remains on your credit report for six years. This includes missed payments, defaults, CCJs, and bankruptcy. Therefore, lenders can see any financial issues you’ve had in the past six years. However, the impact of these issues on your mortgage eligibility tends to decrease over time, especially if you can demonstrate improved financial behaviour.

Can I get a buy-to-let mortgage with bad credit?

Yes, it’s possible to get a buy-to-let mortgage with bad credit, but your options may be more limited. Certain lenders specialise in dealing with borrowers who have a bad credit history and may offer buy-to-let mortgages. It’s important to note, however, that the rates may be higher compared to those with good credit.

Can I get a better mortgage rate if I apply with a co-borrower, even though I have bad credit?

Potentially, yes. If the co-borrower has a good credit score, it could improve the likelihood of securing a mortgage at a better rate. However, it’s crucial to understand that the co-borrower will be equally responsible for repaying the loan.

Can I get a mortgage with bad credit and a high income?

Yes, a high income can potentially offset bad credit when applying for a mortgage, as it could indicate to lenders that you have the means to repay the loan. However, lenders will also take into consideration other factors, such as your debt-to-income ratio and the nature of the negative marks on your credit history.

What kind of support can I expect from my lender if I have a bad credit mortgage?

The support offered may vary between lenders. Many lenders will provide access to financial advice to help you manage your mortgage effectively. Some might offer options for payment holidays under certain circumstances or flexibility with payment dates. It’s always important to have clear communication with your lender if you’re having difficulty making payments.

Can I refinance my bad credit mortgage if my credit score improves?

Yes, if your credit score improves significantly, you might be eligible to refinance your mortgage at a lower interest rate. However, it’s important to weigh the costs of refinancing against the potential benefits.

How do I know if I should apply for a traditional mortgage or a bad credit mortgage?

This generally depends on your credit score and financial situation. If your credit score is good, you’ll likely qualify for a traditional mortgage with more favourable terms. However, if you have a poor credit score, a bad credit mortgage may be a viable option. It’s often best to seek advice from a financial advisor or mortgage broker who can guide you based on your specific circumstances.

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