Getting a bad credit mortgage

Understanding bad credit

Bad credit can affect your ability to get a mortgage. It’s important to understand what bad credit is and how it can impact your finances. These actions are crucial steps when aiming to get a mortgage with bad credit.

If you have bad credit, there are still mortgage options available to you. Our mortgage advisors will be able to assess your individual circumstances and recommend the best mortgage for you.

What bad credit events can I get a mortgage with?

Lenders view people applying for a bad credit mortgage as a higher risk. Therefore, they may not approve your application or may charge you a higher interest rate.

Some events that you can still obtain a mortgage with are:

• Missed Payments
• Late Payments
• Debt Management Plans
• Discharged bankruptcy
• Defaults
• CCJs
• IVAs

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:

How to get a bad credit mortgage

Getting a mortgage with a poor credit score can be difficult, but it’s not impossible. To enhance your credit score and improve your likelihood of mortgage approval, consider the following actions:

• Get registered on the Electoral Roll. Being registered provides a valuable way to verify your address and identity. It is also very helpful in fraud scoring. All very important factors lenders consider during their application process.
• Close any credit accounts you don’t use. This shows responsibility to lenders, as they want to know you can manage your finances before lending to you.
• Get copies of your credit report from each of the three main credit agencies. Addressing these issues is important for anyone seeking a bad credit mortgage. From here you now have a starting point to work on to improve your credit. This can also help you find errors and have them corrected if necessary.
• Create a realistic budget for your household and spend within your means. There’s lots of information online about budgeting. You can also find plenty of free budget planners available too.
• Utilise credit builder credit cards. If you have little or no credit history these can be very beneficial to you. Even though it may seem odd to take out more credit to improve your credit score. Only utilise one if you can make your payments. If you are declined upon application do not try to re-apply as this may damage your credit even further.

If you’re struggling to improve your credit score, consider speaking with a specialist adverse credit mortgage broker. Our team of specialist brokers have a wealth of knowledge about the adverse mortgage market. We’re happy to give you friendly, honest advice about your circumstances.

How much could I borrow for a bad credit mortgage?

For a bad credit mortgage, the more money you can put down as a deposit, the higher your chances of getting accepted are. These tables give you an idea of the deposit amount that would be required based on the property value. The loan-to-value (LTV) is the percentage of mortgage required based on the property’s value.

How much will a bad credit mortgage cost?

There are a couple of things to consider when looking at the costs of a bad credit mortgage:

• Interest rates will be higher than on the high street.
• The amount you can borrow may be less.

This is because specialist lenders take on more risk when offering mortgages to poor credit individuals. They need to charge higher interest rates to cover their costs and make a profit. They may also require a larger down payment or other forms of security.

When considering a bad credit mortgage, it’s important to shop around and compare different deals before you apply. You should also speak to a mortgage broker who can help you find the best deal for your individual circumstances.

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 offer a bad credit mortgage to you and how much interest to charge.

Can I remortgage with bad credit?

Yes, it is possible to remortgage with bad credit. However, the lender will consider your individual circumstances and the severity of your bad credit. You may need to make a larger down payment or accept a higher interest rate.

Interest rates for remortgaging will be the same for those of a standard bad credit mortgage.

These factors are critical in determining the terms of your mortgage with bad credit. So, an event that occurred 4 years ago will carry less weight than something that occurred 6 months ago.

You can improve your chances of remortgaging with bad credit by:

• Making all your payments on time.
• Paying down your debt.
• Closing unused credit cards.
• Requesting a copy of your credit report and disputing any errors.

First-time buyer bad credit mortgages

Getting a mortgage as a first-time buyer with bad credit is not impossible, but it can be difficult.

Most mainstream lenders may not approve these applications, but there are many other lenders who will be willing to help you.

Using a mortgage broker can also improve your chances of success. They can ensure your application is shown in the best possible light before it’s submitted.

What if I have little to no credit history?

It is still possible to obtain a mortgage with no real borrowing history, but it’s not always straightforward. Lenders will use their own methods to assess an applicant’s suitability.

Some will have a process to determine your credit score, while others use a more human approach; carrying out manual checks and understanding your situation.

Getting a self-employed bad credit mortgage

Obtaining a self-employed mortgage with a clean credit history can be difficult enough. So, what if you have a less-than-perfect credit history? Well, you’ll be pleased to know that it’s still possible to do so. Although, this doesn’t mean it will be a straightforward process.

Like any bad credit mortgage, a specialist lender is likely to bring you the highest chance of success. To get a bad credit self-employed mortgage, you may need to supply a higher deposit or accept higher rates.

Identifying your bad credit issues and looking to improve your credit record is a great starting point. This is because it’s essential to show a lender that you can manage your money.

Using a mortgage broker to help prepare an application and find the right lender can be crucial too. Some brokers, like us, have access to exclusive deals that aren’t open to the public, meaning you immediately open up the available options.

Furthermore, showing previous years’ accounts can also improve your chances. Ideally you want to show three years of accounts, however showing more won’t hurt. You may also be required to show evidence of any forthcoming and ongoing work.

Buy-to-Let bad credit mortgages

Historically, Buy-to-Let lenders have shied away from individuals with bad credit, requiring applicants to have a clean record. However, in recent times this has changed due to the increase in specialist bad credit Buy-to-let mortgage lenders filling a gap in the market.

However, due to the niche operations of these lenders, you will have to work with a mortgage broker to access them. Their products aren’t advertised widely to the general public, making them very hard ,if not impossible, to find on your own.

When applying for a bad credit mortgage for Buy-to-Let, it’s very important to prepare all of your budgets, ensuring they are as accurate and realistic as possible. A larger-than-average deposit is normally required, typically a minimum of 25%.

Although, factors like the nature of the credit event, the amount of money involved, and the time that has passed since the credit issue will influence criteria.

So no matter if you’re in a DMP, or if you’ve had a CCJ, IVA or any other credit issue, reach out today. We will pair you with one of our expert advisors who can get you started on your journey.

Can I get a Right to Buy bad credit mortgage?

Yes, it is possible to do so. Like with any bad credit mortgage, lenders will look at the type of bad credit event, how much money was involved and the time that has passed since.

You may be required to provide a larger deposit or accept a higher interest rate.

Bad credit mortgage lenders

The financial crisis made it harder for people with bad credit to get a mortgage. Specialist mortgage lenders for bad credit have stepped in to fill this gap. They have different criteria for accepting borrowers, so it’s important to speak to a specialist mortgage broker.

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. Understanding these details is paramount when applying for a mortgage with bad credit.

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 mortgage lenders that The Mortgage Centres work with are:

• Bluestone Mortgages
• Aldermore
• Precise Mortgages
• Kensington
• Pepper Money

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.

Using a mortgage broker for a bad credit mortgage

A specialist mortgage broker’s job is to help you find a lender and a product that will suit your situation. They can also give you advice on how to improve your credit history in advance of your next application.

There are many mortgage lenders in the market, however some do not deal directly with the public. A specialist mortgage broker can help you access their products.

We are an unlimited mortgage broker, which means we have access to some of the most competitive deals available. If you have bad credit and need help getting a mortgage, contact us today.

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.