Bad Credit Mortgages
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Bad Credit Mortgages
A bad credit mortgage is a term used in the industry to refer to a home loan available from a specialist lender catering to borrowers who have encountered previous financial difficulties. You will usually find lenders offer bad credit mortgages at a slightly higher interest rate, and you may have to provide a larger deposit or a greater amount of equity.
Dealing with people just like you every day, we know that no two cases are the same, and that many of you could still find mortgages at standard interest rates, despite financial issues in the past. The mortgage market continues to evolve, and mainstream lenders now take elements of adverse credit into account, so you may not need the services of a specialist lender. Once we’ve seen your credit report and discussed your circumstances, we’ll be able to easily work out the best route open to you.
Bad Credit Mortgage Information
Bad Credit Mortgage Rates
Typically, interest rates for bad credit mortgages will be higher than those for conventional home loan arrangements, as lenders perceive a greater risk in lending to people with a less-than-perfect financial past. However, the industry has evolved, with more lenders entering the market and new products being created, thus providing greater choice for potential borrowers. As competition for customers has increased, many lenders continue to review their conditions and criteria, and interest rates have moved closer to standard rates accordingly.
The level of difficulty in your past credit history will have an effect on the interest rate a lender will offer, but they will also take into account other factors, such as your loan-to-value (often referred to as LTV, being calculated according to the deposit you can make or level of equity you hold).
Bad credit mortgages to do usually appear in ‘best buy’ tables due to all the factors that can contribute to calculating interest rates. However, our experienced advisers are familiar with lenders’ varying criteria, and will know where in the market to find the best product for your circumstances.
Bad Credit Mortgage Lenders
The financial crisis in 2008 caused mortgage lenders to tighten their conditions, shutting off mortgages to all borrowers but those with the cleanest financial histories and lowest loan-to-value scores. The resulting gap in the market meant that, since then, the role of the ‘specialist’ lender – someone catering specifically for those who have had financial difficulties, with products tailored to their needs – has steadily grown.
In contrast to a mainstream lender (who typically won’t have any set criteria for bad credit clients, if they accept applicants with a poor credit history at all), the specialist lenders will have set out the kinds of conditions they are willing to accept, some down to the details regarding the types of event, when they occurred and the amount concerned. Our specialist brokers will be aware of each lender’s criteria and will know exactly which will be best suited to your requirements.
Can you get a mortgage with Bad Credit?
Having a bad credit history does make it more difficult to get a mortgage, but it will still be possible in the majority of cases. To help your chances of getting accepted for a mortgage with bad credit, here are a few things you can do to improve your credit score.
How to improve your credit rating:
- Firstly, make sure you do these things:
- Get registered on the Electoral Roll, if you are not already.
- Close any credit accounts you don’t use – store cards, etc.
- Contact the 3 main UK credit agencies for copies of your credit report.
- The next stage:
- Check your credit reports to make sure they are accurate, and if any of them contain errors ask the issuers to correct them.
- Show you are completely on top of your financial situation by listing all your incomings and outgoings, and working out a realistic budget for your household.
- If you continue to struggle with your household budget, take another look at your figures and check if you allowed enough for bills, etc, or forgot to include some additional spending.
- Open a savings account and make a deposit (however small) into it every month. And every time you have something extra – like a ‘free’ council tax month or an unexpected rebate – put that in as well.
Our team of specialist brokers have a wealth of knowledge about the whole market, a huge amount of experience with obtaining mortgages for people with bad credit, and access to deals you won’t usually find on the high street. We’re happy to give you friendly, honest advice about your circumstances.
How much will a Bad Credit mortgage cost?
Specialist lenders price their products depending on the perceived levels of risk, so you will find their interest rates will always be slightly more than those on the high street. The amount you will be able to borrow may also be less, according to what they think you can afford.
What issues have an impact on cost?
Lenders will consider a number of things, including:
- The number and type of adverse credit events contained in your credit report, as some will carry more weight than others. Occasionally paying your mobile phone bill late might not be of too much concern, but defaulting on your mortgage is a more serious issue.
- When your adverse credit events occurred. These stay on your record for six years, but the older they are, the less they will impact how lenders perceive your risk.
- The settlement of historical debts.
- The loan-to-value (LTV). The lesser percentage of the value of a property they lend, the more likely the lender is to get their money back in the event of you being unable to keep up your payments.
In addition to the above, the lender will also look at your presence on the electoral register, your level of debt compared to your income, as well as how often you may have changed jobs or moved house. Lenders will look at your whole picture in order to understand the overall strength of your application and come to an informed decision.
What will it cost me to get a mortgage with bad credit?
The only way to get a concrete answer to this question is to meet with one of our advisers, who will be able to look at all your circumstances and give you a proper idea of the costs according to how much you want to borrow. In the meantime, try out our Bad Credit Mortgage Calculator to get a rough idea of your chances for approval, and the amount you might be able to borrow.
What causes Bad Credit?
As the UK’s credit reference agencies all calculate their scores in different ways, there is no all-defining ‘bad credit score’. Lenders will base their decisions on all the information contained in your credit reports before offering a mortgage.
What are key contributors to a bad credit score?
- Not being on the electoral roll.
- Court records like CCJs, bankruptcies and IVAs.
- Any history of mortgage defaults or missed payments.
- Incorrect address on the credit report.
- Frequent applications for credit, especially those declined.
- Your level of current debt, and repayments.
- Use of payday loans.
You can do things to help your credit score, as outlined above, but not all lenders will view this in the same way. Each lender will handle your circumstances in a different way, so one of our advisers will be able to give you guidance as to which will best suit your credit history, and help you go through the steps to obtaining the right mortgage for your needs.
What black marks on my credit history should I worry about?
- County Court Judgements (CCJs)
- Individual Voluntary Arrangements (IVAs)
- Debt Management Plans
- Missed or late payments
If you have one or more of these, it is not the end of the world, especially if they are now behind you. Many of our clients had almost given up hope, but we have been able to help countless people with previous bad credit to secure a mortgage.
How do you know if you have Bad Credit?
Some people might get the unwelcome news that they have a poor credit history when their mortgage application first gets declined – a surprise to many who do not have a long credit history, or any history at all. Others may have reluctantly been aware that previous court actions or missed payments will have caused a black mark against them. Unless you have debt collectors on your heels or serious letters from credit card providers, it may not be obvious that you have a bad credit score.
How do I find out if I have a low credit score?
There are three main credit reference agencies in the UK – Experian, TransUnion and Equifax – each collecting data on people’s financial behaviour. When doing a credit check, lenders will contact one or all of them to see your information, and will then make their own assessment on your credit rating.
This creates a problem in that different lenders will interpret data in different ways, and the scores given from the three agencies do not give a good guide as to where you sit overall with regard to a credit rating.
As a broad guideline…
Experian creates a score from 0 – 999, and breaks down results as follows:
|0 – 560||Very Poor|
|561 – 720||Poor|
|721 – 880||Fair|
|881 – 960||Good|
|961 – 999||Excellent|
TransUnion scores people out of a possible 710, and uses this score to give a rating from 1 to 5:
Equifax generates a score out of 700, and breaks down results into five categories:
|0 – 279||Very Poor|
|280 – 379||Poor|
|380 – 419||Fair|
|420 – 465||Good|
|466 – 700||Excellent|
How do you get your credit report?
We strongly advise you to take a proactive approach with your credit score and log on or speak directly to one of the companies we recommend – either TransUnion, Equifax or Experian – to obtain a copy of your report.
If you think you may have trouble getting a mortgage, the information in the report could be vital. Fortunately, the process to obtain your credit report has never been easier, and we also provide a definitive guide for you to assess the contents.
Can I remortgage with Bad Credit?
The process of obtaining a remortgage is very similar to that of applying for a new mortgage, and the criteria will be pretty much the same. Therefore, bad credit will have the same kind of impact as with any other kind of mortgage, but at the same time will not present an insurmountable barrier, and we can say with certainty that it is absolutely possible to remortgage when you have a bad credit score.
However, a lot will rest on looking into your own individual circumstances. To be able to help you in your search for a remortgage, we’ll need to understand exactly the nature of your adverse credit, its severity, how much time has passed since it occurred and what has changed in your personal situation in that time. The options available to you may also depend on the level of equity you already have in your present property or the amount of deposit you will be able to provide. Only when we have a complete overview will we have clarity on what could be possible and know which lenders will be most open to your application for a remortgage.
You can also take steps to improve your credit rating in preparation for your next remortgage application. If your low credit rating is caused by easily-remedied factors, such as one or more unused credit cards left open, creating a high level of available credit, or maybe even a lack of credit history, then this can be fixed very easily. If your credit rating has been harmed by more serious factors, then this could take more work, depending on their severity and lapsed time. Suffice to say, a few missed card payments three years ago, or a five-year-old CCJ that was settled with no black marks since, will be far less problematic than a bankruptcy or repossession within the last twelve months.
Expert advice from a professional mortgage broker, coupled with a little planning based on what we know a lender will need to see in order to accept your application, can transform your situation. Where you might have been initially refused a remortgage on your home, you may now be able to confidently apply for a product that suits your needs, provided by a lender who caters to people in your particular circumstances, and a much higher likelihood of your application being accepted.
Bad Credit Mortgage Calculator
You’ll find calculators everywhere these days to help you with decisions around all aspects of the house buying and mortgage process – giving you a guide on anything from how much stamp duty you might pay to how much you could be able to borrow.
Bad credit mortgage calculators will ask a short series of questions about your specific circumstances, so the result will be tailored to your actual situation, and will usually ask for your credit score, so it’s a good idea to have it before you start.
You’ll get a general indication of your chances of getting a mortgage, with your current credit rating, and how much you might potentially be able to borrow. The results are just a guide only, but can help you make an informed decision about how you will progress. A meeting with an adviser may be able to give more details on the possibilities, or raise opportunities that the calculator is not able to allow for.
Bad Credit Mortgage Advice
Trying to get a mortgage when you have any kind of bad credit can prove to be quite a challenge, and one that can seem insurmountable should you have experienced more severe financial problems in the past. You may have already approached one or more high street lenders and been declined, or researched the options available online and still drawn a blank. Your journey can seem like a series of dead ends. This is when you need to turn to a specialist mortgage adviser in order to find out what your options really are and the most effective route to obtaining the right mortgage to meet your requirements.
There are many more mortgage lenders in the market than meet the eye. With mainstream providers turning away potential borrowers with bad credit, several specialist lenders – catering specifically to the needs of people with a range of adverse credit issues, from missed payments to bankruptcy – have entered the market to fill this vacuum. You will not have been able to find out about them yourself – they do not deal directly with the public and you won’t see them in any online listings or best buy charts –but you can access them through a specialist mortgage adviser or broker.
Bad credit mortgage advice will be invaluable – getting the right lender and the most favourable deal possible will save you further frustration, a huge amount of time and possibly a significant amount of money. As an unlimited mortgage broker, enjoying excellent relationships with mortgage lenders across the UK market, we have access to some of the most competitive deals available to borrowers with bad credit, often on an exclusive basis.
We’ll be able to take an informed look at your financial position right now, identify exactly the right lenders to help you according to your circumstances, and then offer solid guidance on your most beneficial options moving forward.
Bad Credit Mortgage Brokers
Put simply, a bad credit mortgage broker is a vital middle-man between borrowers and providers, specialising in sourcing and negotiating mortgages on behalf of people who have bad credit items in their financial records. They will usually have a great deal of experience of working with borrowers with bad credit and will assess your circumstances, determine which lenders will be suitable to approach and outline the most favourable options for you to choose from. It’s not actually a job title in itself, but the term does easily identify exactly how one can help you if you are looking for property finance with adverse credit on your files.
Navigating the mortgage market can be confusing, even for people with clean credit records. If you introduce a bad credit factor into the equation, then the task can become more complex still; options on lenders and products will be reduced, but the kind of specialist lenders you need to approach and the products they offer will generally not be ones you can research yourself, either online or on the high street.
An experienced and well-connected bad credit mortgage broker will have access to exactly the right lenders who can help you and will also know the ins and outs of how each of them work. Every lender has their own individual criteria for borrowers, and a broker familiar with bad credit will be able to tell you exactly which will be most suitable for your application.
Accurately weighing up all the factors and permutations around the numerous deals available also usually requires professional input from someone completely familiar with the territory. Your broker will balance all the aspects of possible mortgage deals – the deposit or equity required, affordability, loan duration, interest rates, initial deal period, administration and set-up fees, valuation fees, commissions, possible charges for early redemption, etc. – to ensure you get the best possible arrangement, and can often get deals on an exclusive basis.
Our expert team of brokers at The Mortgage Centres includes several individuals who specialise in obtaining bad credit mortgages for our customers. If you’d like to speak to someone about your options, just get in touch today.
Can Mortgage Brokers use Specialist Lenders
Knowing that only a specialist lender will be able to help you in your search for a mortgage means you are already ahead of the game. Until they encounter difficulties with mainstream lenders and come to us for advice and guidance, most applicants are not fully aware of all the options available to them, and may think they have reached a dead end. If you’re already wondering which specialist lender will be right for you, then you will be happy to hear that most mortgage brokers can indeed use specialist lenders.
It’s important to bear in mind that specialist lenders – such as those who cater specifically to people with adverse credit issues – do not usually deal directly with potential borrowers, preferring to only consider applications made through a trusted middle-man like an established mortgage broker. So it’s actually essential that you enlist the services of a professional broker in order to access products and deals that have been designed with your situation in mind.
However, while it’s advisable to work with a mortgage broker when you have a poor credit record, it’s worth noting that not all brokers are the same. Some are tied to specific lenders, financial groups or certain portfolios, so will not be able to offer the full range of options available to you in the market – if the most suitable product or most favourable deal for your situation exists outside of their remit, then you will not get to know about it.
At The Mortgage Centres, our team routinely deals with mortgage applications for people with bad credit on their records, or low credit scores for other reasons. If you’d like to know more about the options open to you, don’t hesitate to get in touch with an adviser today.
Is It more expensive to use a Mortgage Broker If I have Bad Credit?
The fact that you have a history of bad credit will not in itself make a mortgage broker charge more for their services. The way brokers are paid and how much will vary from lender to lender, with the most common method being a one-off fixed sum (also known as a procuration fee) paid not by the customer but by the lender to the broker, to remunerate them for referring the business. Other times, the broker’s fee will equate to a tiny percentage of the mortgage value (anything from 0.3% to 1.0%), so this will directly relate to the amount of money you are borrowing.
In either case, this will always be transparent and included by law on all illustrations of costs around any schemes they recommend, so you can see that they are truly getting you the best deal, rather than whichever will deliver them the most commission.
However, you may be wondering if the total you will pay for your mortgage, including fees, will be more than if you had not used a mortgage broker at all. After all, any additional fees would presumably be passed on or recovered somehow, and if you are keeping a careful eye on your finances you’ll want to make sure you’re not incurring expenses you don’t need. We’re happy to say that, in almost every case, as mortgage brokers we are able to get a better deal for our customers than if they had tried to source the mortgage themselves, and they pay less over the duration of the loan.
Even where the broker is paid by commission, we’ve seen that this sum is gained back easily within the first few years of the mortgage. Thanks to our relationships with lenders across the spectrum of the UK market, we’re often able to individually negotiate a more favourable interest rate for our clients, which will result in more manageable monthly payments and a lower final total. Even a shift of just 0.1% in the interest rate can mean a significant saving over the lifetime of the loan.
How this will work out for you exactly will depend on all the factors around your particular mortgage, but we can paint a very broad picture here. If you successfully applied for a mortgage of £250,000 with a 3.95% interest rate, lasting 25 years, the total you pay would be £393,810. If your mortgage broker negotiated a more favourable rate of 3.85% (just 0.1% difference), the total paid would be £389,692 – a saving of £4,118. If your broker’s fee was 0.35% (£875), then you can see it was worth it.
Please note that the above is a very rough calculation. Much will differ according to your particular circumstances, how lending rates stand at the time you apply and how greater a rate you might be asked to pay according to the nature of your bad credit. You may also be able to switch mortgage to a more favourable deal once an initial period has passed, if your scheme allows. Your mortgage broker will again be able to advise you and ensure you pay no more than necessary. In fact, not using a mortgage broker to source and negotiate the best deal possible for you could work out to be a costly mistake.
Bad Credit FAQs
- Are you tied to high street lenders?
- Do overdrafts make credit scores worse?
- What do I need to get started?
- What does a bad credit score look like?
- How does bad credit affect you?
- Can I apply for a joint mortgage if my partner has bad credit?
- Can I refinance a mortgage with bad credit?
- Can a mortgage broker help with bad credit?
- Is it possible to remove bad credit from your record before six years?
- Does marrying someone with bad credit give you bad credit?
No, we’re unlimited mortgage brokers, which means we have access to the whole market, not just a panel of lenders or certain products. So, we really can do more to find you a mortgage to suit your circumstances.
If you’re careful with your overdraft and use it responsibly when you need to, then it shouldn’t have an impact. But if you are often on the limit of your overdraft, then that might have an impact on how a lender views your creditworthiness.
Not too much – you simply need to pick up the phone to our office, or send us a message through the contact form and someone will call you back. It’s not imperative, but if you already have a copy of your credit report before getting in touch, this can help speed up the discussion initially.
Lenders all view a credit report in slightly different ways, while the credit reference agencies will sometimes report events differently, or may even have differing information about you, so it’s difficult to say exactly. Decisions are made on the facts rather than figures, and if you do have adverse credit events on your file like missed payments, CCJs, IVAs or defaults, then you will need to speak to a specialist adviser about your options for a mortgage.
If you have any bad credit events on your financial records, then lenders will view you as a higher risk when you apply for a mortgage, loan or other credit facility. This means they might not accept your application, or, if they do, then you may have to pay a higher rate of interest. A poor credit record may also affect your job applications if you are working in the financial sector.
This is a very good question. If you are making a joint application for a mortgage, then lenders will take both of your credit histories into account. Whether your application is accepted may depend on the severity of your partner’s previous adverse credit event, how much time has passed and their borrowing behaviour since it occurred. Some lenders will accept people have a discharged bankruptcy, CCJs or are in an IVA, and specialists take more into account than the simple facts and figures, understanding that people and circumstances can change.
Yes, it could still be possible to refinance your mortgage even if you have bad credit history – lenders will take your overall financial situation into consideration. We recommend that you obtain a copy of your credit report, and talk things over with an experienced mortgage broker to get an accurate appraisal of your options.
A specialist mortgage broker who routinely assists applicants with bad credit histories will usually be able to help you find a lender and a product that will suit your situation. However, if it is not possible at that time (perhaps if the adverse credit events were too severe and recent), then they can give you solid advice on what steps to take to improve your credit history in advance of your next application.
It’s usually not possible to get a bad credit event removed from your records before six full years have elapsed, unless it was made in error. If you do spot anything incorrect on your credit reports, you should contact the creditor promptly to make sure they update their files, and also copy this message to the credit reference agencies to make sure they put things right too.
No, this will not impact your credit records in reference to any loans, credit cards or mortgages you have taken out yourself, as generally things are treated individually. However, if your credit accounts are taken out jointly, then your partner’s poor credit history could impact how you are viewed by lenders, who may decline an application, or accept it with a higher rate of interest.