First Time Buyer Mortgage Bad Credit History

Podcast approved by The Openwork Partnership on 05/12/2024.

First Time Buyer Mortgage Bad Credit History

Lee McAteer explains how the mortgage process works if you’re a First Time Buyer and you have bad credit.

Can you buy a house with bad credit as a First Time Buyer?

Yes. It’s just going to depend on what the bad credit is, when it was put on your credit file and also the amount. Speak to a mortgage broker to see what your chances are and which lenders you’ll be able to get approved with, depending on your situation.

Can I get a mortgage as a First Time Buyer if I have a CCJ, IVA, a default, a bankruptcy or if I have payday loans?

With CCJs and defaults, yes, but it will depend on the amounts and when they were registered. It will help if you have satisfied the account, so you’ve paid that debt off.

With an IVA, it must have finished. With bankruptcy, you could get a mortgage once it has been discharged for 12 months or more.

Payday loans aren’t necessarily bad credit. I’ve had a mortgage approved this week for a client who has payday loans with a high street lender.

Some lenders won’t accept you if you’ve had a payday loan in the last 12 months, but others will.

Do First Time Buyers need a credit score? Can I get a mortgage if my credit score is very poor?

Often First Time Buyers, especially younger ones, will have a low score naturally because they may not have had much credit. If you’ve had one credit card and missed a payment, it’s going to really impact that score, because you haven’t demonstrated that you could repay credit over a period of time.

You don’t need a specific score, you just need to be found by lenders on a credit report. They want to see that you could borrow and pay it back. Being registered on the electoral roll will improve your score as well. If you could keep on top of payments, that will only improve your chances.

What is the right home loan for a First Time Buyer with bad credit?

I would recommend having a mortgage on a repayment basis, to ensure that the mortgage is going to be paid off at the end of the term. On a repayment basis, part of your monthly payment is interest for the loan, and part is a repayment. It means the mortgage balance will gradually reduce over time.

How much deposit will I need? How much can I borrow if I have bad credit?

You generally need a minimum 5% deposit, but it does depend on how bad and how recent the credit issue was.

You could borrow anything between four to six times your income – that’s the general rule. There is a caveat to that. If you’ve got car finance, credit cards, other financial commitments or children, that will impact the multiple of your income you could borrow.

All lenders work slightly differently on affordability, so approaching a mortgage broker will take that weight off your shoulders – let us find the right lender and mortgage for your needs.

What’s the process of applying for a mortgage with bad credit as a First Time Buyer?

Just speak to a broker as early as you could in the process. You don’t want to find a house and then find out there are issues on your credit file that will make it a challenge to get agreed. Perhaps you won’t even be able to get agreed for a mortgage at that point, and you’ll lose the house you really want.

At a point when you think you want to buy a house in the next six, 12 or 18 months, make an appointment with a mortgage broker. We’ll have a look at your credit file and your finances to see what’s realistic. We’ll put a plan in place of when you will be ready – and make sure you’re not going to have any issues at the point when you want to move.

What steps can I take to improve my chances of getting a mortgage with bad credit as a First Time Buyer?

First of all, get a copy of your credit report. You need to know what is on it. So many times we see defaults for mobile phone contracts, where at the end of the contract you change provider, or even get a new contract with the same provider. Sometimes there’s a final bill that gets missed – it could be less than £20 or £30.

Things like that might not be your fault, in which case you could approach the provider and they could get it removed from your credit file. If you’re not in a rush to buy straight away, you could rectify things on your credit report to put you in a good position, and give you a better chance of getting a cheaper lender.

So have a look at the credit report and keep on top of your finances. Make sure you’re not living in an overdraft, and there’s enough surplus at the end of the month to afford the new mortgage. Try to save as much deposit as you possibly can between now and when you’re ready to proceed.

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

If you’ve got any questions, just reach out to a mortgage broker like ourselves. We’d be happy to help and signpost the right time for you to make the move.

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.

Approved by The Openwork Partnership on 05/12/2024.