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Bad Credit Mortgage

Podcast approved by The Openwork Partnership on 16/12/2024.

Lee McAteer 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 could affect you getting a mortgage, particularly with high street lenders that offer cheaper rates of interest – but not in all cases.

You might need a larger deposit, but it depends when the events have happened. If you’ve had a default, a County Court Judgement (CCJ), a repossession or similar, when that event happened is very important. We also need to know how much it was for and whether it is satisfied.

We could then have a look at which lenders you qualify for and how much deposit you would potentially need.

Are there specific lenders who specialise in mortgages with bad credit?

Yes, there are specific lenders that specialise in adverse credit, but high street lenders will also accept some bad credit situations. It just depends on your circumstances.

The first port of call is always to look at high street lenders, because they’re generally going to offer you a cheaper rate of interest. If, for whatever reason, you can’t get a mortgage with the high street, we could look at more specialist lenders. These would potentially come with a higher interest rate.

What is considered bad credit in the UK?

Generally bad credit will involve defaults, CCJs, debt management plans, IVAs and repossessions. Something else that appears on credit files is if you’ve not kept up with payments, and you’ve arranged to pay a lower amount.

You’re still contributing to the debt, but not paying your contracted amount. That’s an ‘arrangement to pay’.

Lenders deem you as a higher risk if you’ve not kept up with previous contractual payments. So they may say no to your application, or they charge a higher rate of interest, depending which lender we could get agreed with.

Can I still get a mortgage if I’ve had previous bankruptcy or foreclosure?

You could- it’s just a matter of time. Once the the bankruptcy has been discharged for 12 months or more, potentially you could obtain a mortgage

What if I have been declined for a mortgage with bad credit previously?

If you’ve been declined by one lender, it doesn’t mean you can’t apply straight away with another lender – they might accept you.

Or, it may be that there’s something on your file, but if you wait a few months it may fall off your credit report and you could then meet the criteria. The right idea is to speak to a broker. We would look over your credit report and point you in the right direction. We will signpost the right time to reapply, if that’s what you need to do.

What if I’m a First Time Buyer and have bad credit? Will it affect me getting a mortgage?

It will be the same for anyone. Certain lenders won’t allow a First Time Buyer to have a default or a CCJ within the last two or three years, which may mean you are affected. In general, there’s no real difference between a home buyer or a First Time Buyer. It just depends on what’s on your credit report and when it appeared.

Do I need a larger deposit for a mortgage with bad credit?

If you have a larger deposit, you’ll open up more lenders. You could potentially get a mortgage with a 5% deposit with bad credit – it just depends how severe the issue is and when it happened. The more recent the event, probably the larger the deposit you’re going to need.

What is the minimum credit score required for a mortgage with bad credit?

We get asked this all the time – my credit score is X, could I get a mortgage? All lenders use their own scoring system and don’t set a specific score to pass with a certain deposit size. But we’ve had clients with scores of less than 200 be able to get a mortgage.

If your score’s in the low hundreds, it’s unlikely you’re going to get a mortgage with a low deposit. The higher the score, the better your chances. But it is specific to the lender and also relates to when events happened.

Can you remortgage with bad credit?

Yes, you could remortgage with bad credit. It just depends how much equity you’re going to be leaving in the property and which lenders will accept your application.

When you’re buying a property, you need a 5% or 10% deposit as a minimum. It’s the same when you’re remortgaging – you need to leave at least 5% or 10% equity in the property. It all depends on the value of the property and how much you’re looking to remortgage for, in terms of whether lenders would take you on.

Can I get a Buy to Let mortgage with bad credit?

You could, but Buy to Let could be more difficult, because the pool of lenders is smaller than when purchasing property to live in. You’re restricted in terms of who you could approach.

A Buy to Let is generally a second or third mortgage – so if you can’t keep control of your finances lenders will be more reluctant. You would be renting a property out and banking on the rental income to pay that mortgage, but bad credit will mean they are less inclined to to lend – so it is tougher.

Can you consolidate debt twice?

It is possible, but it’s based on individual circumstances. A client, for instance, might have racked up credit card debt and loans. They want to remortgage and add that debt onto the mortgage, which turns unsecured debt into secured debt. That’s then all paid off, but two years later they come back with the same level of credit card debts again.

Remortgaging a second time would mean the equity in the home is getting smaller and smaller. That isn’t sensible. But if you could prove on your credit card statements that the money was used to pay for renovating your property, and you want to pull some money out to pay off that debt, that may be acceptable.

It just depends on the circumstances. But if you’re constantly racking up credit card debt and planning to add it onto a mortgage, that isn’t the right thing to be doing.

Can I use a guarantor for a mortgage with bad credit?

Yes, you could, although it’s subject to credit score and lenders. Again, there’s a limited pool of lenders that will accept a guarantor for a mortgage. With bad credit it will be tougher, but it is possible.

How long do I have to wait after improving my credit score before applying for a mortgage with bad credit?
You don’t really need to wait if it’s improved – you could try again. A mortgage broker will be able to signpost that for you, and tell you when is the right time for a chance of approval.

What else do we need to know about getting a mortgage with bad credit?

If you have had bad credit in the past, speak to a broker with your credit report to hand. Even if you’re not ready now, just have a chat to see how things lie.

Check my file is our preferred report, as you’ve got three credit reference agencies on that: Equifax, TransUnion and Experian. Sometimes adverse events are only reported on one or the other. With that report we’ll know which lenders will accept what’s on your report and when you’re most likely to be approved.

That conversation with a broker shouldn’t cost you anything – we certainly wouldn’t charge to help put you in a position to be mortgage ready.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

Approved by The Openwork Partnership on 16/12/2024.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.