In this bad credit mortgage guide
- Are mortgages for bad credit available in the UK?
- How to get a mortgage with bad credit
- How to find the best mortgage lenders for bad credit
- What factors do bad credit mortgage lenders consider?
- Why your credit score is important
- What will affect my credit score?
Are mortgages for bad credit available in the UK?
If you have a bad credit history, the good news is that this doesn’t automatically rule you out of the mortgage market, even if your record might put off many lenders.
It may be tougher to get a mortgage if you have missed payments on your credit history, a debt management plan, county court judgement (CCJ) or have declared bankruptcy. You will usually need a larger deposit, the interest rate will be higher and there won't be as many mortgages to choose from - but it still may be possible to find a suitable mortgage.
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How to get a mortgage with bad credit
Getting a mortgage with a bad credit rating is possible but it is harder than usual to find a lender. Plus, there are a number of characteristics that you might find come as part of the package if you choose to take out a mortgage with bad credit.
Higher interest rates
Bad credit mortgages often have significantly higher interest rates. This means larger monthly repayments compared with a normal fixed or discount mortgage.
Larger deposits
You’ll probably need a larger deposit as well. A 5% or 10% deposit is usually enough for a fixed or discount mortgage. But bad-credit mortgages will usually want a deposit of 15% – which is an LTV of 85% – or more.
Compare our best bad credit mortgages
How to find the best mortgage lenders for bad credit
If you have bad or adverse credit, you may need the help of a mortgage broker to find a bad credit mortgage lender. Most bad credit mortgages are available only through mortgage brokers. A mortgage broker will assess your individual circumstances and try to find a suitable bad credit mortgage for you.
What factors do bad credit mortgage lenders consider?
Each mortgage lender has its own way of calculating your credit worthiness. They will consider a wide range of factors when deciding whether you're a reliable borrower or not, such as:
- Your mortgage application form - Taking into account your income and any other debt obligations
- Existing information about you - Any information a lender already has about you, such as if you have a bank account with them
- Their lending policy - Each lender has their own lending policy which can differ from lender to lender
Alongside the lender’s own criteria, your credit scores with rating agencies such as Equifax, Experian or TransUnion also play an important role. These give a lender a view of your credit history and public record data (e.g. CCJs, IVAs).
How to improve your credit score
Why your credit score is important
When you make an application for a mortgage, lenders will work out your credit score so they can decide if you're a reliable borrower or not. A poor credit score could affect your chances of securing a mortgage, or reduce the number of lenders prepared to offer you a loan.
Usually the better your credit record, the better your chances are of securing a mortgage to buy a house or property. There is no minimum credit record or rating for getting a mortgage, but in general you want your credit record to be as clean as possible before applying for a mortgage.
What will affect my credit score?
There are several factors that are likely to negatively affect your credit score, including:
- Missing payments on other lines of credit
- This can include loans, credit cards and hire-purchase agreements
- A high level of debt
- Too many recent credit applications - for credit cards, mortgages, store cards, etc.
- Exceeding an agreed credit or overdraft limit
- Being financially linked to someone who has bad credit
- Through a joint bank account or a mortgage
- County court judgments (CCJs)
- Bankruptcy
- Not appearing on the electoral roll
How to improve your credit score?
If you want to improve your credit record and gain access to better mortgages and other credit products, there are a number of things you can do.
Credit building card
If you haven’t borrowed much (or at all) in the past, lenders can find it hard to measure your credit-worthiness and how you manage debt. One way to demonstrate your credit-worthiness is with a credit building card. If you use it consistently for a while and always clear your balance or meet the minimum monthly repayments, your credit record should improve.
Keep up with your payments
Probably one of the most important ways to build up a positive credit record is to make sure you are always on time with your loan and credit card payments. Every time you make a payment on time, a positive trace is left on your credit record. Importantly, aim not to exceed your agreed credit or overdraft limits.
Be patient with your score
Be aware that building up your credit rating is usually quite a slow process. If you’ve recently applied for a few credit products in a short space of time, your credit rating may dip down, and it might not bounce back for about 6 months. If you think you may be rejected for a mortgage, it can be wise to hold off the application and wait until your credit score improves as every application for credit is recorded. Speak to a mortgage broker who may be able to help you obtain a soft credit check, which will not show on your credit record.
How to improve your credit score
How bad credit can affect different types of mortgage applications
Having a bad credit history can have an impact on all types of mortgage applications, from buy-to-let to Right to Buy. So how does it affect your likelihood of getting accepted?
Buy to let mortgage with bad credit
It's possible to get a buy-to-let mortgage with bad credit, but a poor credit history could prevent you from accessing the best deals.
Affordability will also be taken into account. Lenders will look at a combination of the rental income the property can achieve and your circumstances. If you look as though you'll be overstretched with your borrowing, you're unlikely to be accepted.
And remember that fees tend to be much higher with buy-to-let mortgages – and even more so if you have bad credit.
Compare buy to let mortgages
Guarantor mortgage with bad credit
With a guarantor mortgage, your guarantor agrees to make your repayments for you if you fall behind on your payments. This reduces the risk for the lender, making you more likely to be accepted. That’s why guarantor mortgages can be appealing options for people with bad credit or no credit history.
But the risk shifts to the guarantor, who will be legally responsible for paying your mortgage if you can't – and guarantors risk losing their own homes if you run into problems.
And as with all other mortgage applications, the worse your credit score, the fewer borrowing options you will have available.
Compare guarantor mortgages
Help to Buy with bad credit
The Lifetime ISA (LISA) is a scheme designed to help first-time buyers save for a deposit. To help you reach your goal faster, the government will add 25% to your savings. You can deposit a maximum amount of £4000 a year.
Even if you have a low credit score, you can still get a LISA. That's because you're saving money, not borrowing it. So you won't need to pass any credit or affordability checks to apply.
A Help to Buy equity loan, however, involves borrowing a percentage of your house deposit, so a bad credit score could affect your chances of approval for this type of mortgage.
Help to Buy Equity Loan calculator
Shared Ownership mortgages with bad credit
Shared Ownership aallows you to purchase part of a property (usually up to 75%) and to pay rent to a housing association on the remaining share at below market value.
You'll need a mortgage to buy your share, and although it's possible to secure a home loan with bad credit, many lenders might be put off.
Learn more about Help to Buy Shared Ownership
Right to Buy mortgage with bad credit
If you're looking to buy your council house through the Right to Buy scheme, you'll need to get a mortgage.
The landlord you're buying the property from is not responsible for helping you finance the purchase of your home, so you'll have to go through the same process as with any other mortgage application.
Again, having bad credit will make it harder for you to find a lender that's willing to offer you a deal.
Learn more about Right to Buy
Compare other types of mortgage
- Fixed-rate mortgages
- 2-year fixed-rate mortgages
- 3-year fixed-rate mortgages
- 5-year fixed-rate mortgages
- 10-year fixed-rate mortgages
- 60% LTV mortgages
- 85% LTV mortgages
- 90% LTV mortgages
- 95% LTV mortgages
- 100% LTV mortgages
- Buy to let mortgages
- Interest only mortgages
- Guarantor mortgages
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Last updated: 7 January, 2022
As an expert and enthusiast, I don't have personal experiences or credentials like a human expert would. However, I can provide you with information on the concepts discussed in the article you shared.
Mortgages for Bad Credit in the UK
The article discusses mortgages for individuals with bad credit in the UK. It explains that having a bad credit history doesn't automatically rule someone out of the mortgage market, although it may be more challenging to secure a mortgage compared to individuals with good credit. Lenders may require a larger deposit, charge higher interest rates, and offer fewer mortgage options for those with bad credit.
How to Get a Mortgage with Bad Credit
The article outlines that getting a mortgage with bad credit is possible, but it can be harder to find a lender. It suggests that individuals with bad credit may need the assistance of a mortgage broker who specializes in bad credit mortgages. A mortgage broker can assess the individual's circumstances and help find a suitable lender.
Factors Considered by Bad Credit Mortgage Lenders
The article explains that each mortgage lender has its own way of evaluating a borrower's creditworthiness. They consider factors such as the mortgage application form, the borrower's income, existing information about the borrower, and the lender's own lending policy. Additionally, credit scores from rating agencies like Equifax, Experian, or TransUnion play a significant role in assessing a borrower's credit history and public record data.
Importance of Credit Score
The article emphasizes that when applying for a mortgage, lenders evaluate the borrower's credit score to determine their reliability. A poor credit score could affect the chances of securing a mortgage or limit the number of lenders willing to offer a loan. While there is no minimum credit score requirement for getting a mortgage, a better credit record generally improves the chances of obtaining favorable mortgage terms.
Factors that Affect Credit Score
The article lists several factors that can negatively impact an individual's credit score, including missing payments on other lines of credit, having a high level of debt, making too many recent credit applications, exceeding credit limits, being financially linked to someone with bad credit, having county court judgments (CCJs), bankruptcy, and not appearing on the electoral roll.
Tips to Improve Credit Score
The article provides tips on improving credit scores, including using a credit building card to demonstrate creditworthiness, making payments on time, avoiding exceeding credit limits, and being patient as building a positive credit rating is a slow process. It also suggests speaking to a mortgage broker who may be able to provide a soft credit check to avoid negatively impacting the credit record.
Mortgage Applications with Bad Credit
The article briefly discusses how bad credit can affect different types of mortgage applications, such as buy-to-let mortgages, guarantor mortgages, Help to Buy mortgages, shared ownership mortgages, and Right to Buy mortgages. It mentions that a bad credit history may limit the availability of options and potentially result in higher fees or reduced acceptance rates.
Please note that the information provided is based on the article you shared, and it's always a good idea to consult with a qualified mortgage professional or financial advisor for personalized advice.