Everything you need to know about having Bad Credit and Mortgages

People have bad credit against their name for all sorts of reasons, from historical mortgage arrears to having a home repossessed. While these issues can make approval more difficult, they don’t have to be a deal breaker if you are looking for a mortgage with bad credit.

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If you’re one of the many who have a history of adverse credit, the good news is that the market is vast and there are deals out there for all kinds of borrowers, not just those with a pristine credit report.

It doesn’t matter if you’ve been turned away in the past as, with the right advice, it may be possible for you to obtain a bad credit mortgage.

What is a bad credit mortgage?

A bad credit mortgage is for borrowers with adverse credit, a poor credit score or low credit rating. Specialist providers will provide loans to bad credit applicants, although the rates and payments offered might be higher than for customers with clean credit. If you have enough income or a healthy deposit, it may be possible to find a competitive deal.

Specialists who sell niche financial products like this tend to be more flexible in their lending and decisions will be based on the age, severity and cause of the credit issue in question, as well as how likely they are to reoccur.

What’s bad credit?

When someone has ‘bad credit’ it means they have a history of failing to keep up with one or more previous credit agreements. This might be the result of failing to meet credit payments on time or failing to pay them at all. This information is held on your credit report and can make future applications for credit more difficult.

Can I get one with a bad credit history?

Yes, while it may not be easy to get a mortgage with bad credit, it doesn’t mean finding a favourable deal is impossible. How hard you find it may come down to the severity of your credit problems, how long they’ve been on your file, and how closely you meet the other criteria on the provider’s eligibility and affordability requirements.

Even if you have really bad credit, such as bankruptcy or repossession on your file, there are a minority of specialist lenders who may consider lending to you. Their decision will mostly come down to how long ago the issue was discharged.

You can improve your chances by approaching a bad credit mortgage broker, as they can find you the best deals to suit your circumstances.

What is a bad credit mortgage lender?

Simply put, they are providers who specialise in customers with adverse credit on their file.

While some mainstream firms might turn away borrowers who’ve experienced financial difficulties, specialist ones base their decision on the severity of the issue, the age of the credit issue, and how closely the applicant meets their other eligibility requirements.

Some of the circumstances which providers specialise in are:

  • First-time homebuyers with bad credit
  • Customers with low/no credit score
  • Every other type of adverse credit

It may prove difficult to get the best rates on your mortgage if you have bad credit because getting a great rate usually depends on meeting all the criteria along with having a clean credit history. However, you can increase your chances of getting a great deal if you have enough income and a good deposit.

How do they determine eligibility?

There are two main things involved in assessments when bad/poor credit is a factor:

  1. The type and severity of the issue – missed payments on bills or loans are given more leniency than more serious problems such as recent bankruptcy
  2. The date it was registered – the older your adverse credit history, the better

Anyone who has experienced bankruptcy is unable to apply for a mortgage until they have been discharged (which usually takes around twelve months). Most firms will insist on a three or four year period following the bankruptcy discharge, as well as a good credit history during that time before they will consider a loan.

Similarly, interest rates for customers who have had a property repossessed within the last three years tend to be very high, but they should steadily decrease with every passing year. The longer the customer manages to maintain financial activity without incident, the lower the risk of lending.

Which lenders offer mortgages for people with bad credit?

A wide range of lenders will offer bad credit mortgages, from high street banks to specialist mortgage providers. The thing to keep in mind is that the lenders you an approach and the interest rate you will end up with will likely depend on the age, severity and reason for your credit issues.

What credit issues will be accepted?

Repossessions and bankruptcies are considered the most severe type of adverse credit you can have on your file, while things like missed phone bill payments are problems many providers may be willing to overlook.

Specialist providers often take a more flexible approach than those on the high-street and can offer a lifeline to applicants with any of the following…

  • No credit history
  • Low credit score
  • Late payments
  • Missed mortgage payments
  • Defaults
  • CCJs
  • IVAs
  • Debt management schemes
  • Repossessions
  • Bankruptcy
  • Payday Loans
  • Customers with multiple credit problems

These providers often base their lending decision on the cause and severity of the adverse, the age of the credit issue, and how closely you meet their other eligibility and affordability requirements.

For example, if you are trying to get a mortgage with a CCJ, its more likely, than a mortgage combined with several bad credit issues.

What else impacts eligibility besides my credit rating?

Although a provider will look at your credit history when assessing your application, they might also base their lending decision on the following variables…

  • Your income and employment status:
    The more you earn, the more you could borrow, but how you make your money will also be of interest to the provider when they’re calculating the size of your mortgage. A specialist provider might be needed if you’re self-employed or make a significant amount through bonuses, overtime or commission.
  • Your deposit:
    The minimum deposit sum you’ll need for a residential property is 5% (although some providers will want more) or 15% for a buy-to-let. The more deposit you put down the more you minimise some of the perceived risk your bad credit creates.
  • Your age:
    Some providers won’t cater for borrowers over 75, others 85 and a minority will lend with no upper age limit, as long as they’re confident the borrower will be capable of repaying their loan debt in retirement.
  • Your outgoings:
    Other significant outgoings (such as outstanding loans or dependent children) may affect the amount you’re able to borrow.
  • The property type:
    Properties with non-standard construction (i.e. thatched roof, timber frame, etc) might require a specialist.

How your salary could affect your chances

Because mortgage rates are always in flux and can change at any time, getting an average figure for a bad credit loan is often ineffective. However, as a borrower with poor credit, the key to finding the best rates is access to the entire market and meeting the eligibility and affordability requirements for as many lenders as possible.

Which is where your salary can go a long way to help your application…

High income

If you’re on a high wage and want the maximum loan possible, you will need to find a firm willing to offer the highest multiple of your wage. With bad credit on your file this can be tricky because some providers will see you as high risk, regardless of your healthy income.
Income specifics can be vital to an application because most providers cap the size of a residential home loan at x4.5 the borrower’s salary, others will go up to x5 and a minority will stretch to x6 under the right circumstances.

Low income

This can be trickier as low income and poor credit are considered niches in the world of borrowing, but with whole-of-market access, it may be possible to get a loan from a specialist who caters for both categories.

There are a number of options available for low-income mortgages, including guarantor mortgage products or supplementing income with things like benefits. Some lenders are happy to consider mortgages for people on benefits if they have other sources of income.

There are also government schemes such as Shared Ownership that could help you out.

A joint owner, sole proprietor mortgage may be an option (especially for first-time borrowers), as this type allows a second party (typically a parent) to help the applicant buy a home without featuring on the title deeds. The additional security of extra capital and/or good credit rating could make it easier to get accepted.

How much deposit do I need?

The minimum deposit requirement for a residential property in the UK is 5% or 15% for a buy-to-let, but if you have adverse credit, some providers will only offer you a mortgage loan if you put down more deposit, depending on the age and severity of the issue.
For example, those with a repossession on their credit file may be able to get a property loan from specialist firms within 1–3 years if they put down a 25% deposit.

Those with an individual voluntary arrangement (IVA) will need between 10-25% deposit, depending on how long is left to run on the debt, and those with a bankruptcy will need between 15-25% in the first three years.

5 – 10% deposit

It may be possible to get an LTV (loan-to-value) between 90 and 95% with minor bad credit (some lenders will allow a mortgage with defaults if the default is for a mobile phone for example), as long as you meet the provider’s other eligibility requirements.

However, you might struggle to get a mortgage with severe adverse, such as bankruptcy or repossession, history as these issues usually call for a larger deposit amount to offset the risk, especially if they’re less than three years old.

That isn’t to say it’s impossible to get a great loan-to-value with these issues against your name, but specialist advice will be essential.

You might struggle more if you have severe adverse, such as a recent bankruptcy, repossession or IVA.

50% deposit

It may be possible to find a provider willing to offer you a 50% loan-to-value with bad credit, as a deposit this substantial will offset the risk involved in the deal.
You will still need to pass all of the standard eligibility and affordability checks, but a deposit of this size will certainly help your cause.

100% mortgage / no deposit

This will prove difficult as 100% mortgages are not typically offered to customers with bad credit, or anyone else, for that matter. One of the only ways to get a residential loan with no deposit whatsoever is by having a family member or close friend act as a guarantor.

With a bad credit guarantor mortgage (also known as bad credit family springboard products), the lender will secure the loan against a property your guarantor owns or against their savings, as this security can serve as an alternative to a deposit.

The process for securing this loan with bad credit is the same as applying for any other kind of property loan under these circumstances. If a provider considers you too high risk due to your adverse, having a guarantor is unlikely to change their mind on that.

Can I get a mortgage with no credit check?

Not exactly. While it’s impossible to get a mortgage with no credit check in the UK, lenders aren’t generally interested in your credit ‘score’ – they’re interested in how your specific history fits in with their eligibility criteria.

Can first-time buyers with a bad credit history get a mortgage?

Yes, though seeking specialist advice is highly advisable because first-time buyers could be considered higher risk to some providers, and your adverse credit history won’t help with that.

Not all providers will allow you to use one of the government’s first-time buyer initiatives (such as Help to Buy). However, a more flexible firm might permit it, as long as you meet their other requirements.

Another thing to consider is that they tend to come with larger deposit requirements, which some first-time buyers might struggle to meet. The advisors we work with will help you find the best deals for a first-time buyer with your needs, circumstances and credit history.

How far back do mortgage lenders look at credit history?

Many will typically look at the last six years, as six years is the maximum amount of time most credit issues can remain on your file.

Even if you have active adverse within this time frame, it may still be possible to get a loan, depending on the severity of the issue and when it was registered.

Can I get a self-build mortgage?

It might prove difficult to get one of these products with bad credit, but by no means impossible if you speak to an specialist advisor.

Self-build mortgages are designed for those who have the expertise to build their own property (or at least oversee the construction of it). This is often professional builders, but these products are not exclusively aimed at tradesmen.

They are harder to secure than regular residential deals because the borrower must prove they are capable of seeing the project through and that the final build value will line up with the original valuation.

With this in mind, the level of risk is often higher compared with a conventional loan and, as a result, not all providers offer self-build loans. With bad credit against your name, the number of approachable providers will be even smaller.

That said, getting a self-build mortgage loan with poor credit isn’t out of the question if you have whole-of-market access.

Can I get a contractor mortgage with bad credit?

Possibly, yes.

There are specialist mortgage providers who cater to the type of contractors listed below:

  • Self-employed contractors with an adequate history of accounts
  • Employed fixed/short-term contractors
  • Umbrella company mortgages
  • Mortgages for zero hours contracts with 6-months’ working history
  • Mortgages for agency workers

Whether you’re offered a deal might come down to factors such as how long you’ve been employed in that capacity, whether your contract has been renewed before, as well as the severity of your adverse credit there could be some contractor mortgages available to you.

Can I port my mortgage?

Porting a mortgage (transferring a debt from one property to another) is theoretically possible if you have bad credit.

The process isn’t too different to applying for a regular residential loan, so whether you’re successful will depend on the lender’s criteria, the severity of your credit problems and how long they’ve been on your report.

Can I get a commercial mortgage loan with bad credit?

Yes, this is certainly possible as commercial mortgage lenders operate on an unregulated basis, so they have a degree of flexibility when it comes to who they offer finance to and under what circumstances. A specialist provider could help you attain one.

You can find out more in our guide to commercial mortgages.

Can I get a bad credit mortgage if my partner has good credit?

Yes, it’s possible to get a bad credit mortgage if your partner has good credit as there are lenders who specialise in joint applications involving only one bad credit applicant. In this scenario, your bad credit will still be factored in when the overall strength of the application is being assessed, and it might mean the deals you qualify for are fewer.

That said, mortgage approval and favourable rates could still be possible if you apply through a specialist broker who knows exactly which lenders to approach.

Can I get a joint mortgage if my partner has an IVA?

Yes. You could still potentially get a joint mortgage if your partner has an IVA. Your partner’s bad credit would be factored in and will impact the overall strength of the application, but there are lenders who are more than happy to consider joint mortgage deals involving one bad credit applicant.

Can I get a joint mortgage if my partner has an IVA?

Yes. You could still potentially get a joint mortgage if your partner has an IVA. Your partner’s bad credit would be factored in and will impact the overall strength of the application, but there are lenders who are more than happy to consider joint mortgage deals involving one bad credit applicant.

Speak to a specialist

A specialist bad credit mortgage broker will be able to understand your circumstances and find the most appropriate mortgage deal to fit your circumstances and financial situation. Complete our enquiry form to be matched to a specialist mortgage broker.

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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the brokers we introduce you to, to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All brokers we introduce you to are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.