Buying a House with Bad Credit
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Samuel
First-time buyers | Residential Mortgages | Buy to Let
Buying a House with Bad Credit
Worrying about bad credit can make buying a home feel daunting, but our team at JB Mortgages is here to help. We regularly support buyers who are concerned that past money troubles might stand in the way of owning a property. Below, we answer some of the most common questions about getting a mortgage with a less-than-perfect credit history. You will learn how lenders assess your background, what role your deposit plays, and how different property types can affect your chances. We also cover helpful topics like using gifted money, checking your credit report correctly, and avoiding simple mistakes that could slow down your house purchase.Is it easier or harder to get a purchase mortgage with bad credit compared to a remortgage?
Buying a house with bad credit can be harder than simply switching products with your existing mortgage lender because a purchase requires a full mortgage application and credit assessment. However, it is not necessarily harder than remortgaging to a new mortgage lender, where similar checks apply. Existing homeowners may benefit from having equity, whereas buyers usually need a deposit. Your options will mainly depend on the type, severity, and age of the bad credit that shows on your credit report, along with affordability and the deposit that you have available.If someone already owns a home and wants to move, but they’ve picked up bad credit since their last mortgage, can they still buy?
Yes. Developing bad credit since taking out your last mortgage does not automatically prevent you from moving home. You may be able to transfer or port your current mortgage, but your lender will normally reassess your affordability and credit history. Alternatively, another mortgage lender may accept your application. Any equity released from your current home can be used towards the deposit, which may improve your options. A mortgage broker can assess this before you put your property on the market.What types of credit issues cause the most problems when someone is specifically trying to buy a property?
Recent mortgage arrears tend to cause particular concern because they relate directly to housing payments. Other issues that can reduce the lenders available include recent defaults, large or unsatisfied County Court Judgments (CCJs), active debt management plans, Individual Voluntary Arrangements (IVAs), bankruptcies, and previous repossessions. However, mortgage lenders consider more than just the name of the credit issue. They look at when it happened, the amount involved, whether it has been resolved, the reason behind it, and how you have managed your affairs since the issues happened.Can you use a gifted deposit from a family member when buying with bad credit?
There are mortgage lenders who are happy to accept a gifted deposit when you are buying a house with bad credit. This gift will usually need to come from a close family member, although some lenders are happy to accept a gift from a personal friend. The donor must normally confirm that the money is not repayable and that they will have no ownership interest in the property. This is usually confirmed in a gifted deposit letter. The mortgage lender and solicitor will usually require evidence showing where the money came from. This is normally provided in the form of three months’ bank statements.Are new build properties easier or harder to get approved for if you have bad credit?
New build properties can be slightly harder to finance when you also have bad credit. Some mortgage lenders restrict the maximum Loan to Value on new build houses and particularly new build flats. Developer incentives, property valuations, and mortgage offer expiry dates can create additional complications. Combining adverse credit with a small deposit and a new build property may therefore reduce the available range of options. Saving up and having a slightly higher deposit will certainly help. It is sensible to confirm your mortgage position before reserving a new build property or paying a non-refundable reservation fee.Should you get a Mortgage in Principle before you start viewing properties if you have bad credit?
If you have bad credit, obtaining a suitable Mortgage in Principle (MIP) – also known as an Agreement in Principle (AIP) – before viewing properties is especially important. It can indicate how much you may be able to borrow, the deposit you require, and whether your credit history fits the lender’s criteria. However, it is worth noting that an MIP is not a guarantee of final approval. A mortgage broker should ideally review your credit report before selecting a lender. This will avoid making several speculative MIP applications, particularly when lenders carry out hard credit searches.Speak To an Expert
Everyone’s different. You might be self-employed. You might have some credit history issues – whatever your situation, we will find the most suitable product available to you from across the whole market.
Does the type or value of the property you want to buy affect your chances of being approved?
The mortgage lender must be satisfied with both the applicant and the property being purchased. Standard houses of conventional bricks and mortar construction are generally easy to mortgage. However, this may differ for properties with unusual construction. This includes properties with short leases, high-rise cladding concerns, properties above commercial premises, or in certain cases even ex-local authority flats.
The purchase price, mortgage amount, and Loan to Value also matter. An applicant might meet the lender’s bad credit criteria, but they can still be declined if the property is considered unsuitable security.
Are there any government-backed schemes that can help people buy a home with bad credit?
There are currently no government schemes specifically designed to guarantee a mortgage for someone with bad credit.
However, there are schemes such as the Help to Buy Mortgage Guarantee Scheme, which can support eligible buyers purchasing with a 5% deposit. There are also mortgage lenders who can accept bad credit, and the Help to Buy Mortgage Guarantee Scheme.
Shared Ownership and the First Home Scheme may also reduce the amount someone needs to borrow or save. These schemes do not override normal mortgage lender credit checks, so the applicant must still meet the lender’s affordability and credit requirements. These schemes also differ between England, Wales, Scotland, and Northern Ireland.
How long does the purchase process typically take when the buyer has bad credit?
Buying a house usually takes several months, and this applies whether you have bad credit or not. The mortgage application itself typically takes two to three weeks to be fully approved.
Having bad credit does not automatically delay the process, but lenders may use manual underwriting and request additional explanations or documents. Because of this, it may take slightly longer than two to three weeks in some cases. You can prevent avoidable delays by checking your credit reports and preparing your paperwork in advance.
What’s the most common mistake people make when trying to buy a property with bad credit?
One of the most common mistakes we see is applicants applying to a mortgage lender offering a lower interest rate online without checking if they fit the lender’s credit history.
A declined mortgage application can waste time and may leave an additional search on your credit report. Buyers should avoid hiding or overlooking credit problems, because mortgage lenders will definitely identify them.
We recommend obtaining all three credit reports, which you can do by registering with Check My File. You should then speak to a mortgage broker who is experienced in bad credit mortgages before submitting a mortgage application.
Summary
Buying a home with bad credit can feel tricky, but our team at JB Mortgages is here to help you understand your options. Whether you are moving house, using a gifted deposit, or looking at new builds, having bad credit does not mean you cannot get a mortgage. To give yourself the chance of success, we always advise checking your credit reports early and speaking to our expert advisers before applying. This stops you from making costly mistakes and helps us find the right lender for your situation.
Key Points
- Having bad credit does not stop you from buying a home, because lenders look closely at when the issue occurred and how you have managed your money since then.
- Recent mortgage problems, defaults, or County Court Judgments (CCJs) can limit your choices, but many lenders will still consider your application.
- Using a gifted deposit from a family member is accepted by many lenders, as long as you have a signed letter and bank statements to show where the money came from.
- Getting a Mortgage in Principle before you view properties helps you know what you can borrow without hurting your credit score with failed applications.
- Applying for a lower online rate without checking if you fit the lender criteria is a common mistake that can lead to a declined application.
- Our team recommends checking your credit reports and speaking with our mortgage advisers before you apply for any loans or reserve a property.
Your property may be repossessed if you do not keep up to date with your mortgage repayments.
