What we cover in this guide
- What is a bad credit mortgage?
- Try our bad credit mortgage calculator
- Understanding bad credit
- How to get a mortgage with bad credit
- How much will a bad credit mortgage cost?
- Can I remortgage with bad credit?
- Bad credit mortgage lenders
- Mortgage brokers for bad credit mortgage advice
- Bad credit mortgage FAQs
What is a bad credit mortgage?
Bad credit mortgages are mortgages that are available to people with a poor credit history. They are also known as ‘adverse’ or ‘poor’ credit mortgages.
They usually come with a higher interest rate and a larger deposit requirement. This is because lenders will see you as high risk. However, there are now mainstream lenders that offer bad credit mortgages at standard interest rates.
The best way to find out if you qualify for a bad credit mortgage is to speak to a mortgage adviser.
What bad credit events can I get a mortgage with?
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. These will provide you with your credit score online or through the post.
- Lenders will contact one or all of them to see your information when doing a credit check.
- The lender will then make their own assessment on your credit rating.
- Different lenders will interpret data in different ways. Keep in mind that lenders do not use the scores provided by all three agencies.
This table provides an indication of the health of your credit score based on the agency:
|Very Poor||0 – 560||1||0 – 279|
|Poor||561 – 720||2||280 – 379|
|Fair||721 – 880||3||380 – 419|
|Good||881 – 960||4||420 – 465|
|Excellent||961 – 999||5||466 – 700|
It is important to note that these are just guidelines, and your credit score may vary depending on the agency.
What factors affect the cost of a bad credit mortgage?
- The number and type of adverse credit events on your credit report.
- When the adverse credit events occurred.
- Whether you have settled historical debts.
- The loan-to-value (LTV) of the mortgage.
- Your presence on the electoral register.
- Your level of debt compared to your income.
- Your employment history and residential stability.
Lenders will consider all these factors when deciding whether to lend to you and how much interest to charge.
What do mortgage lenders look for in your credit score?
Mortgage lenders look at your current debt level, repayment history, and any bankruptcy or County Court Judgements. They also consider how many credit applications you have made recently.
They primarily focus on your credit history over the past 3 years. However, they will consider everything on your file. The more recent or severe, the bigger role they will play in the lender’s decision.
Who are the best bad credit mortgage lenders?
We cannot provide a list of the ‘best lenders’ as each application will be assessed on a case-by-case basis. Instead, you will need to focus on who will offer you a mortgage.
However, some specialist bad credit lenders that The Mortgage Centres work with are:
If you have bad credit, don’t hesitate to get in touch with us.
Do I have to stay with a bad credit mortgage lender?
As mentioned, bad credit mortgage rates are typically higher than those of a standard mortgage. Therefore, you would want to find a cheaper deal as soon as possible. You’ll be pleased to know that it’s possible to move away from bad credit lenders if you improve your credit score.
But you cannot rely on your mortgage payments to improve your score. Keeping up with other payments will be essential too.
How does a broker help you with your application?
They will discuss the following with you:
- Your specific credit issues. For example, do you have a County Court Judgement or did you have to declare bankruptcy?
- The loan-to-value (LTV) of your mortgage. The lower the LTV, the better the chance of you obtaining a mortgage. Your deposit or equity amount will determine this.
- Your income and expenditure. Each lender will have their own criteria for income. Some may be more inclined to accept self-employed income, whereas others might not be.
- The type of property you are looking to buy. Certain properties aren’t seen as suitable for a mortgage. This can include high-rise flats or timber-framed buildings.
How much do mortgage brokers cost to use?
Specialist bad credit mortgage brokers will usually charge a flat fee or a percentage of the loan value. Although, some may charge a both. It’s always best to check with the broker before proceeding with anything.
In many cases, using a mortgage broker can save you money, even after you factor in their fees. For example, if you take out a £250,000 mortgage at 3.95% over 25 years, you will pay £393,810 in total.
If you can get a better rate of just 0.1%, you will only pay £389,692 in total. This means you will save £4,118 over the life of the mortgage.
Of course, the actual amount you save will depend on your individual circumstances and the market at the time. However, in general, using a mortgage broker can save you money, even if you have bad credit.
Bad Credit Mortgage FAQs
- Do overdrafts make credit scores worse?
- Can I apply for a joint mortgage if my partner has bad credit?
- Does marrying someone with bad credit give you bad credit?
If you’re careful with your overdraft and use it responsibly when you need to, then it shouldn’t have an impact. However, if you are often on the limit of your overdraft, then that might have an impact on how a lender views your creditworthiness.
If you are making a joint application for a mortgage, then lenders will take both of your credit histories into account. The acceptance of your application depends on a range of factors. This can include the severity of the event, how much time has passed, and the borrowing behaviour since it occurred.
Some lenders will accept people who have a discharged bankruptcy, CCJs or an IVA. These specialists take more into account than the simple facts and figures, understanding that people and circumstances can change.
No, this will not impact your credit records in reference to any loans, credit cards, or mortgages you have taken out yourself. This is because, generally, things are treated individually.
If credit accounts are taken out jointly, your partner’s poor credit history could impact how lenders view you. They may decline an application or accept it with a higher rate of interest.