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Bad Credit Mortgage
Ashleigh Halit explains how the mortgage process works if you have bad credit.
How does having bad credit affect my ability to get a mortgage? What are my options?
Bad credit isn’t going to stop you necessarily from getting a mortgage, depending on what type of bad credit situation it is. With some lenders, the interest rates might be slightly higher. Your monthly payments will be a little bit more, because the lenders are taking on that higher risk in giving you a mortgage.
My advice is that if you’ve got a monthly budget in mind, it’s good to know what to aim for rather than focusing on the rate. It’s a step onto the property ladder. Once you’ve got the mortgage in place, we would try to take you to a high street lender as soon as we can.
If you’ve got bad credit that’s three or four years old, it stays on your file for six years. Once we get to that six year mark we can move you to another, cheaper lender.
Are there specific lenders who specialise in mortgages with bad credit?
Yes, there are specialist lenders and again it depends on the level of bad credit. Some high street lenders will tolerate a little adverse credit – maybe some missed payments or even a default or a CCJ if it’s under £250, typically.
It depends on the recency of any late payments, CCJs or defaults. But there are quite a lot of lenders on the market that do just specialise in adverse credit.
What is considered bad credit in the UK?
It can be things like missed or late payments or a County Court Judgement (CCJ) where someone has gone to court to retrieve the debt back from you. It could be a default, which means you’ve missed a number of payments on one of your credit commitments.
Then there are Individual Voluntary Agreements (IVAs), where you’ve made an agreement via a special organisation company to pay a certain amount of your debt back. Debt management plans are also a form of adverse credit.
Can I still get a mortgage if I have had previous bankruptcy or foreclosure?
Yes, you can still get a mortgage. There’s actually a lender on the market that does ‘day one discharge bankruptcy’ mortgages. So a day after you’ve been discharged from your bankruptcy order, you can actually apply for a mortgage. A previous bankruptcy doesn’t prevent you from moving forward with your life.
What if I have been declined for a mortgage with bad credit previously?
It depends on the reason you were declined. If you went to a broker, it will also depend on who they have access to – there are a lot of lenders on the market.
Just approach your mortgage broker again from scratch, taking a copy of your credit report and then let them do their research. You might want to consider brokers that have experience with adverse credit, because they’re more likely to work with certain lenders who can help you.
If I’m a First Time Buyer, will bad credit affect me getting a mortgage?
It’s no different to anybody else with adverse credit. Again, it would depend on the level of credit issues.
If you’re currently in an IVA, for example, then yes, it would affect you. It depends on how bad the credit is, how recent any defaults, CCJs or missed payments are – and the number of them. You need to speak to someone with experience in mortgages and adverse credit.
Do I need a larger deposit for a mortgage with bad credit?
No, not necessarily. You can still get a mortgage with a 5% deposit with some lenders, so it’s not going to impact you in that way. What it will do is reduce the choice of lenders that you can go to.
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What is the minimum credit score required for a mortgage with bad credit?
A lot of the lenders that help with adverse credit don’t actually use credit scores. They will actually look at your credit report and the information held there to ascertain whether you fit in with their criteria.
For example, some lenders will accept a certain number of CCJs or defaults within a 24 month or 36 month period. If you fit those criteria, they wouldn’t really consider your credit score. It’s a manual underwriting process – which is unlike a lot of high street banks, which have a credit score cut-off.
With those lenders it’s very black and white: you get through the credit score or you don’t. But with adverse credit lenders they predominantly look at what is on your credit file and if you fit in with the criteria that they’re happy to accept.
Can you remortgage with bad credit?
There’s no difference. The criteria we’ve already discussed will apply. The application will be looked at in the same way and matched against the lender’s criteria, looking at the type of credit issue, when it happened and how much it was for.
A lot of lenders help people with adverse credit. So please don’t let it stop you reaching out. There are lots of people in this situation and you will be surprised at what’s on offer.
Can I get a Buy to Let mortgage with bad credit?
Again, the same policies and criteria are used to measure the appetite for risk with each lender. Lots of lenders do accept customers who have had bad credit in the past.
My recommendation is to speak to a broker with experience in adverse credit.
Can you consolidate debt twice?
It depends on a few things – the reason you need to consolidate, how soon after your first debt consolidation you’re asking to do it again and if you’ve reused the same credit cards. But there’s nothing to stop you from debt consolidating twice.
I’ve previously done it for some clients who had a genuine reason for building the debts back up. Lenders are happy to look at that. It depends on the individual situation and why you reused that credit.
If it’s because you’re struggling financially and relying on credit cards to pay monthly bills or your food shopping, an underwriter probably wouldn’t accept that. But we’ve had clients who paid off their debts, then did home improvements using their credit cards and wanted to pay them off again. It just depends on the situation.
Can I use a guarantor for a mortgage with bad credit?
Yes, you can. A lot of lenders out there use guarantors for ‘income booster’ mortgages, which they’re often called these days. It’s the equivalent of having a guarantor – you can have somebody on the mortgage with you to boost the income. That can get you the affordability you need to purchase a property.
The level of debt, how recent it is and the type of debt will dictate whether lenders will consider a guarantor on the mortgage.
How long do I have to wait after improving my credit score before applying for a mortgage with bad credit?
It depends what the starting point is. When talking about improving credit score, everybody sees things differently. I have clients that have had one missed payment but feel they’ve got a really bad credit score. Other clients have had CCJs and defaults.
It also affects the lender we’re looking to approach – perhaps you had some bad credit two years ago, but if you then push forward into the third year it opens you up to more lenders. It varies by the individual situation and what you’re coming out of. It’s always better to speak to someone for specialist advice on your specific situation.
What else do we need to know about bad credit mortgages?
It’s really important that you’re very honest and open about your situation with whoever you discuss this with. The more information you give us, the better picture we can build to package your case and present it to an underwriter.
It’s all about the story – we can explain to the underwriter how you got in this situation and reassure them when they’re looking at your case.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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