If you’re worried about bad credit stopping you from getting a bad credit mortgage, know that we’ve helped hundreds of people find a lender and get approved – even those who have been bankrupt.
Having bad credit isn’t ideal because lenders prefer careful borrowers with a history of timely repayments. If you do have missed payments from the past, there are a few things you can do yourself to improve your affordability for a mortgage.
What is bad credit?
The term “Bad Credit” or “adverse credit” refers to a person’s credit history that shows a variety of negative factors, such as missed payments on credit cards or Klarna, bankruptcy, CCJ, or default.
When a mortgage lender considers someone to have bad credit, it usually means they have a low credit score due to issues such as a lack of credit history or because their credit report displays a record of late payments, defaults, County Court Judgements (CCJs), bankruptcy, or debt relief orders.
What is a bad credit mortgage?
A bad credit mortgage isn’t a specific product, but rather a term used to describe mortgages that are designed for people with poor or low credit scores. While having bad credit can make it challenging to obtain a mortgage, there are lenders who are more experienced and willing to work with people with less-than-perfect credit histories.
Many lenders have mortgage criteria that consider factors like credit history and debt, as long as the debt is manageable relative to your income.
Therefore, if you have a poor credit history or have outstanding debt, there are still options available to you. It’s important to research and compare different lenders and their criteria to find the best bad credit mortgage for your financial situation.
Are bad credit mortgages different to normal mortgages?
Bad credit mortgages are different from normal mortgages in that they come with a higher level of risk for the lender. If a borrower with bad credit is unable to pay their mortgage, the lender could potentially lose money. To account for this risk, lenders who offer bad credit mortgages often charge higher interest rates and higher product fees, making the mortgage more expensive overall.
While this higher cost may not be ideal, some people choose to take out a mortgage with a higher interest rate in the hopes of refinancing to a cheaper deal in the future once their credit score and credit report improve.
It’s important to note that bad credit mortgages are not the same as traditional mortgages, and borrowers should be aware of the risks and costs associated with them. However, for individuals with poor credit histories or significant debt, bad credit mortgages can be a useful option to get you on the housing ladder.
How does a bad credit mortgage work?
If you have bad credit and are approved for a bad credit mortgage, you will be responsible for making set monthly repayments, which will be charged at a fixed or variable interest rate, depending on the type of mortgage agreement you choose.
A fixed-rate mortgage has a set interest rate for a fixed period of time, meaning you can budget long term as you know exactly how much your monthly mortgage payments will be each month. A variable-rate mortgage, on the other hand, can fluctuate based on changes in the Bank of England’s base rate. If the rate increases, your monthly payments will increase as well, while a decrease in the rate would lower your repayments.
You may be required to provide a larger deposit when taking out a bad credit mortgage. Mortgage lenders may ask for a larger deposit, anything from 15-25% of the property’s value, rather than the minimum 5% deposit. However, the amount of deposit required can vary depending on several factors. Working with a bad credit mortgage broker can help you determine the amount of deposit you’ll need and compare different lenders’ deals to find the best bad credit mortgage for you.
It’s crucial to make your mortgage repayments on time each month. Missing a mortgage payment or making a late mortgage payment could put your home at risk.
Can I get a mortgage with bad credit?
Yes, it is possible to obtain a mortgage with bad credit, but it can be more difficult. Mortgage lenders will assess your credit report by checking Experian, Equifax, Call Credit and TransUnion, as they use this information to determine whether they’re capable of making regular repayments.
Having bad credit doesn’t necessarily disqualify you from getting a mortgage. Your eligibility may depend on when your bad credit was registered on your credit report, how many missed payments, defaults or CCJ’s you have, and if your bad credit is now satisfied.
What documents do I need to apply for a bad credit mortgage?
It is important to have all the required documentation ready for your bad credit mortgage application. A new mortgage lender may request some or all of the following:
- 3-months payslips
- 3-years company accounts
- 3-years tax-calculations (previously known as SA302)
- 3-months personal bank statements
- 3-months business bank statements
- ID (such as a valid passport or driving licence)
- Current address (such as a recent utility bill, council tax bill or credit card statement)
- Proof of your deposit showing the build-up of your funds
How does your credit score work?
Mortgage lenders assess your credit score to determine your money management skills and the level of risk involved in lending you a mortgage. A low score indicates higher risk to lenders. Before approving any credit application, including for credit cards, loans, and mortgages, lenders consider your credit score and ability to make repayments.
The two main credit reference agencies, Experian and Equifax, produce credit reports based on various factors, including your current debt level and available credit, repayment history, bankruptcy or other arrangements, CCJs, and credit applications. Late payments and other negative factors reduce your credit score. While some factors have a greater impact than others, they all remain on your credit report for a limited time.
If you have a bad credit score, your ability to obtain credit is limited. Our bad credit mortgage brokers can help you, even if you have a low credit score, if you are considering purchasing a new home.
Can I get a mortgage with a low credit score?
If you don’t have a credit history, it can affect your credit score in the same way as if you had late payments. This can especially impact young people or those who have recently moved to the UK and haven’t had enough time to establish a good credit history. Mortgage lenders prefer to see a 6-year history of payments to assess the level of risk.
However, there are lenders who are willing to accept borrowers with a low credit score. Some lenders will evaluate each case individually, considering the level of deposit and income in relation to the mortgage amount. For personalized advice that suits your specific situation, it’s recommended to seek the help of a bad credit mortgage broker. They can provide guidance on which lenders to consider and discuss the advantages and disadvantages of each option, helping you make a decision that you feel confident about. Contact us for assistance.
Will a bad credit mortgage lender run a credit check?
When assessing your bad credit mortgage application, the most crucial factor for many lenders is your credit report. They will scrutinize your credit management skills by running a credit check with various credit reference agencies, such as Experian, Equifax, Callcredit, TransUnion and Crediva.
How far back is credit history checked for a bad credit mortgage?
Typically up to 6-years, although bad credit mortgage lenders will focus on your recent credit history and may ignore any bad credit registered over 3-years old.
Your address history will also be verified by the credit check and mortgage lenders ideally want you to have been registered on the electoral register at your declared addresses over the last 3-years.
What can mortgage lenders see on my credit report?
Your credit report will show mortgage lenders your personal information including your full name, financial associations, aliases, payment history, electoral register information, linked addresses and credit search activity.
Credit reference agencies also report on court information (CCJs), insolvency records, debt arrangements, CIFAS entries and notice of corrections.
Mortgage lenders will also be able to see details of all active and closed credit accounts you have held in the last 6-years. These details will include your payment history (and dates of late or missed payments), outstanding balance and credit limits.
Why should I check my credit report before applying for a bad credit mortgage?
Checking your credit report important when applying for a bad credit mortgage. If you don’t, you may apply to mortgage lender whose criteria you don’t meet which will result in your mortgage application being declined.
Checking your credit report will saving you time and money as it will make sure you don’t pay mortgage application and valuation fees for a mortgage you don’t qualify for.
There are many free credit reference agencies that allow you to access your full credit report on a free trial – we can help you gain access to your credit report.
How can you improve your chances of getting a mortgage with bad credit?
If you have bad credit, there are steps you can take to improve your chances of getting approved for a mortgage. Mortgage lenders use specific criteria to assess your application, so positioning yourself as a reliable borrower who repays their debts is key. Here are some additional things you can do to enhance your creditworthiness:
- Save a larger deposit
- Ensure you’re registered to vote on the electoral register
- Settle any outstanding defaults / CCJs
- Close any inactive accounts that you don’t use
- Avoid going over any agreed overdraft limits
- Avoid multiple credit checks
- Pay all credit commitments on time
- Lower your debt-to-income ratio.
By taking these steps, you can improve your overall financial profile and show lenders that you are a responsible borrower who can afford a mortgage repayment. Ultimately, this can increase your chances of being approved for a bad credit mortgage.
How to improve your credit score
If you’re uncertain about getting approved for a bad credit mortgage or hoping for a better interest rate or LTV ratio than the one you’ve been offered, it might be worth waiting and focusing on improving your credit score. There are several ways to do this, and with the following steps, you should notice a difference – even if only a small one – within a few months.
Check your credit file – Regularly reviewing your credit score and the information in your credit file is a good idea. This way, you can see any improvements and know when you’re eligible to apply for a bad credit mortgage again. Check for errors on your report, including potentially fraudulent activity, and report them to the credit agency and any lenders immediately. Also, see if your file is linked to anyone else through a joint account or a shared address. If your account is linked to someone with bad credit, this could impact your score.
Ensure you’re on the electoral roll – Having your name included on the electoral roll makes it easier to get credit, as mortgage lenders see it as a sign of stability – that you have a permanent address which you’re willing to share. It also reduces the chance of submitting a fraudulent application. EU nationals can be added to the electoral roll, and non-EU nationals can have proof of residency included in their credit report by sending a copy of a utility bill or their driving licence to the credit reference agencies.
Make repayments on time – Even if you have late payments on your credit file, they become less important as they age. Ensure you pay your bills on time going forward. Some bills are more critical than others and will have a more significant impact on your credit score. These bills include your home phone, mobile or broadband bills and anything else with a credit agreement attached.
Reduce your existing debt – Look at how you can reduce your existing debt before applying for bad credit mortgages. The lower your debt levels, the more likely lenders of bad credit mortgages are to approve you, even if you can only reduce your debt by a small amount. See if you can make more than the minimum payments on credit cards where you carry a balance or pay off loans early (if there are no early repayment fees).
Stop applying for mortgages or other loans – The more applications you make, the worse this looks to lenders as it suggests you aren’t in control of your finances. If you’re turned down for a credit-building credit card, for example, don’t immediately apply for another card but wait a few months before making another application. The same goes for mortgages – if you’re turned down, don’t immediately reapply as this application is also likely to be rejected. If you want to find out if you’re likely to be approved, only complete soft searches as these won’t show up on your credit report.
For further information that’s tailored to your specific circumstances, consider seeking assistance from a bad credit mortgage broker. They can provide bespoke advice and help you decide which lenders to consider and the pros and cons of each option to make an informed decision you’re comfortable with. Contact Us
Are bad credit mortgages expensive?
Bad credit mortgages typically come with higher interest rates and fees although the overall cost will depend on various factors, such as your payment history and deposit size.
If your credit report is only slightly lower than average, you may still qualify for a conventional mortgage with a high street mortgage lender.
In general, the larger your deposit, the less expensive your bad credit mortgage will be. Additionally, taking steps to improve your credit report before applying for a mortgage can also help you qualify for better rates and lower fees.
It’s important to shop around and compare offers from different lenders to ensure you’re getting the best possible deal on your bad credit mortgage.
How much can I borrow on a bad credit mortgage?
When it comes to borrowing on a bad credit mortgage, your credit score and credit report is just one factor that mortgage lenders consider. They’ll also look at your age, employment status, income, and outgoings, including debt, living costs, travel expenses, utilities, and childcare. This is to ensure that you can afford your mortgage repayments and other financial commitments.
Mortgage lenders often use income multiples to determine how much you can borrow on a bad credit mortgage. Generally, borrowers can expect to borrow between 4 to 5 times their annual income. However, this is not a hard and fast rule as other factors also impact the maximum amount you can borrow.
If you want to get advice on how much you can borrow based on your unique circumstances, it’s best to consult with a bad credit mortgage broker who can guide you through the process. Ultimately, the amount you can borrow will depend on multiple factors, so it’s important to work with a professional who can help you navigate the lending process and find the best possible solution for your needs.
How much deposit do you need for a bad credit mortgage?
Bad credit mortgages are available with a minimum of a 5% deposit. Mortgage lenders would only allow a 5% deposit if your bad credit was historic (usually over 3-years). The more severe and recent your bad credit, the higher the deposit you may be expected to have. Some lenders set minimum deposit requirements and lower loan-to-value (LTV) ratios to reduce their risk of loss.
In general, if you have a history of bad credit, the more money you can put down upfront, the less risk you pose to lenders. A larger deposit means you’ll need to borrow less (lower loan-to-value or LTV), which can result in a better interest rate.
When you have a larger deposit, it shows the lender that you’ve been financially responsible and have saved wisely. This can improve your chances of getting approved for a mortgage and may even result in more favourable terms.
Can a first-time buyer get a bad credit mortgage?
Mortgages are available for First-time buyers with bad credit or a low credit. Although there may be fewer options available if your bad credit is recent or severe, first-time buyers with bad credit or a low credit score are not necessarily excluded from purchasing a home. While most high street lenders have mortgage criteria that prevent them from lending to individuals with bad credit, there are still specialist lenders who may be more equipped to lend to borrowers with missed payments, late payments, defaults, CCJs, IVAs, debt relief orders, bankruptcy, or a low credit score.
Each time a first-time buyer applies for a mortgage or loan and get declined, it is recorded on your credit report. Frequent rejections can make it more challenging to obtain a mortgage in the future, as lenders may question why other lenders refused to lend to you. Therefore, seeking the help of a bad credit mortgage broker can increase your chances of being approved for a bad credit mortgage and prevent you from making mistakes on your application or failing to meet the eligibility criteria.
Should I buy a house if I have bad credit?
Borrowers with bad credit may still access mortgage deals with competitive interest rates and terms, depending on their circumstances. However, if the available deals are too costly, it may be worth waiting, improving your credit score and credit report over time, and applying in the future.
Nevertheless, even with bad credit, there are still many options to compare, allowing you to potentially enter the property market sooner than anticipated.
Is it possible to remortgage with bad credit?
Yes, it is possible to remortgage with bad credit. We have assisted many homeowners, buy-to-let landlords, and commercial property owners remortgage with bad credit.
However, if you choose to remortgage with your current lender, they will take your bad credit into consideration when assessing your eligibility for their product. It is important to note that even if you were approved for a mortgage in the past, it does not guarantee approval for a remortgage with bad credit. High street lenders typically reserve their best interest rates for borrowers with a good credit history and a lower debit-to-income ratio.
Specialist lenders have more flexible eligibility criteria and be more willing to approve remortgages for individuals with missed payments, late payments, CCJs, debt relief orders, mortgage arrears, repossessions, or bankruptcy.
Despite bad credit, you may still be in a favourable position to remortgage if you have a stable income, sufficient to cover the repayments, and equity in your property. Having more equity is generally beneficial, although not always necessary.
Can I consolidate debt if I have bad credit?
There are lenders in the UK who are willing to accept borrowers with defaults, CCJs, IVAs, and even those who have been bankrupt. Depending on your circumstances, you may be eligible to remortgage to consolidate your debts. This involves remortgaging for an amount that can pay off your previous mortgage and your debt.
Debts such as credit card debt, car finance agreements, and personal loans can be consolidated with a mortgage. By consolidating your debts, you will have one monthly repayment instead of multiple loan repayments to different creditors. This can reduce the stress of debt repayment, but it is important to consider the serious implications of any financial agreement.
In some cases, but not all, the interest rate charged for a remortgage may be lower than that of a credit card, personal loan, or car finance agreement. Therefore, consolidating all your debt into one remortgage can help to reduce your monthly debt cost.
It is important to note that a remortgage to consolidate debt is a significant decision that can have long-term financial impacts. It is crucial to obtain the right agreement with affordable repayments.
Affordability assessment for a bad credit mortgage
We will need to conduct an affordability assessment for your bad credit mortgage. This is a requirement for all potential homeowners following government legislation introduced a few years ago. Mortgage lenders must assess how much the borrower can realistically afford to repay, which means getting a mortgage may be easier than you think if you can demonstrate your ability to make mortgage repayments.
The affordability assessment takes into account several factors, including your credit report and score, employment status and income, savings, debts, regular expenses, and spending habits. Whether you’re applying for standard mortgages or bad credit mortgages, lenders consider all these factors. A bad credit mortgage broker conducts the assessment beforehand to identify and address any potential issues.
Can a bad credit mortgage broker help me get a bad credit mortgage?
Applying for a bad credit mortgage can be overwhelming, particularly if you have bad credit and are hesitant about approaching lenders, fearing rejection.
We simplify the process by searching and comparing numerous lenders on your behalf and presenting you with the best options based on the information you provide.
Our expertise in the market enables us to identify lenders who offer bad credit mortgages and understand what it takes to get your application approved. Our bad credit mortgage brokers ensure that your mortgage application is packaged in a way that meets a lender’s criteria, with explanations for any adverse credit.
Since you only have one opportunity to make an application, it’s crucial to work with a broker who knows what they’re doing.
JB Mortgages assists hundreds of clients with bad credit, and we don’t judge based on your credit situation. Our passion for helping people find a bad credit mortgage is genuine, and we want you to feel confident that the expert assigned to you will provide assistance when you visit our offices, call or contact us online.
Bad credit mortgage FAQS
Can I get a mortgage if my partner has bad credit?
Having a partner with bad credit or a low credit score can limit the number of lenders available for a joint mortgage application. Mortgage lenders typically prefer borrowers with a good history of responsible financial management and recent credit issues can be a cause for concern. Some lenders may not accept credit issues that occurred within the last two years, although settling debts owed could help in certain cases. It’s important to consult a bad credit mortgage broker for advice on whether to pay off debts in order to increase your chances of getting approved for a mortgage.
While you might consider applying for a mortgage alone, having a partner with a steady income could improve your affordability for the amount you need. Lenders usually calculate the maximum loan size by multiplying the borrower’s income by 4.5. Therefore, having two incomes on a mortgage application often increases the chances of getting approved for a larger loan.
Can I get a mortgage if I have bad credit?
Certainly, if you fulfil the other eligibility requirements of the mortgage lender you choose, you can still obtain a mortgage even if you have a bad credit history. It’s important to note that some lenders limit the amount they will lend to an applicant with significant bad credit. Some lenders may offer a maximum loan-to-value of 85% for a house and 70% for a flat
Can I get a mortgage if I have a CCJ?
If you have a registered or settled County Court Judgement (CCJ), you may still be eligible for a bad credit mortgage. However, since CCJs are issued when you fail to pay what you owe, this can affect your chances of getting approved for a mortgage. Although having a CCJ can be stressful and make it seem like you won’t be able to access credit such as a mortgage, that isn’t always the case.
While High Street lenders may not look favourably on credit issues like CCJs, there are numerous specialist lenders who consider your current financial situation and take a more open approach, taking all factors into account.
Can I get a mortgage with a default?
The answer is yes, but it depends on finding the right lender. Different types of lenders have different lending requirements and specialize in different areas of finance.
For example, a high street lender may not be willing to approve a mortgage with a default, but a specialist bad credit mortgage lender might be a good fit. However, it’s important to note that even with a specialist lender, getting approved for a mortgage with a default isn’t a guarantee. Your chances of approval are even slimmer if you haven’t prepared for your mortgage assessment.
That’s why seeking the right mortgage advice is crucial in improving your chances of getting approved for a mortgage. Having an expert bad credit mortgage broker on your side can make all the difference in securing the mortgage you need, while also protecting your current credit file.
Can I get a mortgage 4 years after bankruptcy?
There is no specific time frame, but it’s advisable to wait until your credit score has improved to a satisfactory level. This will demonstrate that you are capable of making timely and full payments on credit products.
Bankruptcy will be recorded on your credit report for six years from the date you were declared bankrupt. Even after it’s been removed, some mortgage lenders may inquire about your past bankruptcy, which you must answer truthfully. This can have an impact on your mortgage eligibility, so it’s important to keep in mind.
Can I get a mortgage if my house was repossessed?
It can be difficult to find a mortgage lender who will approve borrowers that have experienced property repossession in the past, but it is not impossible in certain situations. Most lenders prioritize borrowers with a history of responsible borrowing and repayment, and view house repossession as a serious issue.
However, this does not mean that you need to wait for an extended period before applying for a mortgage. Each lender has its own criteria, and you can improve your mortgage affordability by increasing your income, boosting your credit score, or saving a larger down payment.