If you have a poor credit history or a black mark on your finances, you may still be able to get a mortgage. Banks and building societies have a range of deals that may be available to those with poor credit ratings. Explore our guide to learn more about bad credit mortgages and how to improve your credit history to increase your chances of mortgage approval.
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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.
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.
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.
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.
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:
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).
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.
There are several factors that are likely to negatively affect your credit score, including:
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.
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.
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 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.
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?
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.
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.
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.
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.
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.
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Last updated: 7 January, 2022