Bad Credit Mortgage

How does having bad credit affect my ability to get a mortgage?

Bad credit, or adverse credit as we often refer to it, can affect your ability to get a mortgage in many ways. It could mean different rates, affordability levels, loan size and even just finding a lender at all.

What is considered bad credit in the UK? What are the different types?

There are quite a few different types. The most typical ones are defaults, if you don’t pay your bills, or late payments on credit agreements. You could have county court judgments, often referred to as CCJs. You could even have an Individual Voluntary Arrangements (IVA)
or it could go as far as bankruptcy.

Payday loans wouldn’t necessarily be considered as bad credit, but lenders don’t really like them. If you need a loan to get yourself through to payday there can be a question about whether you’re able to manage your money effectively.

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

There’s no specific score where you’ll definitely get a mortgage, or a score below which you definitely won’t.

With adverse credit, what has actually been registered, when, how much it was for and whether it’s settled will all have an impact on the availability of a mortgage. Every lender has slightly different criteria and typically it comes down to whether you fit those criteria as opposed to a score.

A lot of those lenders will use a manual assessment rather than an automated credit score. So it’s more about what’s registered and less about a specific score.

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

There are, and they all have different criteria and will accept slightly different things. It’s really important that you disclose everything to your advisor. If you don’t know, find out by getting a copy of your credit report.

The advisor will then use that information to research the market and find the most appropriate and cheapest lender for your personal circumstances.

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

Foreclosure is an American term – in the UK, we typically call this repossession.
But yes, if you have previously been repossessed or even if you’ve been bankrupt, you can still get a mortgage. Just be aware that the options are likely to be limited.

Although your credit record typically lasts for six years, during the process of a purchase the solicitor will do a bankruptcy search. If it turns out that you’ve been bankrupt and it’s not been declared as part of the mortgage application, you could find yourself with an unexpected decline from the lender further down the line. As with all things, the more we know, the better it will be.

Can you remortgage with bad credit?

Yes, you can remortgage with bad credit. As we’ve already mentioned, it comes back to what’s registered, when it was registered, how much it was for, and whether it’s settled.

Ultimately, doing a remortgage is no different to doing a purchase in that regard. An advisor will still look at what’s on your credit file, how that fits with the lender’s criteria and find the most appropriate lender for your circumstances.

Can you consolidate debt twice?

Yes. But if you’re going through a significant debt consolidation for a second time, you could reasonably expect that a lender might want to know a little bit more about the circumstances.

Debt consolidation is not a bad way to reduce your monthly outgoings, but that often increases the overall cost. If you’ve already got yourself into a position where you’ve had to do this once, a lender may have questions as to how that happened a second time and whether remortgaging again would be the most appropriate solution.

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

The minimum deposit is still 5%, as with any mortgage, but it depends on what’s registered. The larger the deposit is, so moving away from 5% towards 10%, 15%, 25%, or even 40%, you will find more relaxed criteria and potentially more lender options available to you.

It’s simply that the less you’re borrowing, the less risk there is to the lender when it comes to potentially having to recover those funds.

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

Guarantor mortgages don’t really exist anymore. But what you can do is Joint Borrower Sole Proprietor, where you potentially have more than one person on the mortgage. Here, you could have potentially two, three, or even up to six people on the application, but only one or two of those on the deeds of the property. That allows us to extend affordability.

Not a huge number of lenders will do that. And not all of them will accept adverse credit. So if you’ve got somebody that wants to help you, let your advisor know and we’ll find out what their circumstances are.

We can then go and research the market for you and see if there’s an appropriate lender who will help you.

How long do I have to wait after improving my credit score before applying for a mortgage with bad credit?

Nothing remains on your credit file for longer than six years. After that time, it times out and disappears. But some lenders do have criteria about how long ago adverse was registered.

Sometimes that could just be a year. It might be two, three, four years, or you could have to wait the full six. My advice would be don’t wait, ask the question today. Then, if we can find a lender that will fit with you and they can offer you the mortgage amount you need, at a rate you’re happy with, you can move forward.

There wouldn’t be a specific amount of time – it will vary from place to place.

How can I improve my chances of getting approved for a mortgage with bad credit?

We would always recommend, first of all, getting your accounts up to date. That’s a fast and effective way of getting past your bad credit. Try to get them settled.

Pay those balances off or pay them down as quickly as you can. It might sound quite obvious, but once you’ve made the effort to get there, keep it that way.

How can a mortgage broker help here? Have you got anything else to add?

Always use a good advisor for this kind of situation, because lenders out there have some really quirky criteria. Particularly as we came out of Covid, people had small credit blips and troubles, and these are not a barrier to move home.

But if you’re going to go and research it yourself, it could be a long and time consuming process. We’re here to help make that process much shorter.

Come and talk to an advisor, tell them as much as you can, and that gives us the best opportunity to find not just the right lender, but hopefully the cheapest one for your circumstances.

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