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Getting a mortgage when you have a bad credit history

Getting a mortgage when you have a bad credit history

There is no such thing as a ‘bad credit mortgage’. Mortgages for those with bad credit operate in exactly the same way as conventional mortgages. Here’s what you need to know…

Tobi Owens
From the Mortgages team
minute read
posted 9 DECEMBER 2019

Why is it difficult to get a mortgage with bad credit?

Since the credit crunch in 2008, new affordability rules brought in by the Bank of England have forced lenders to be more careful when issuing  mortgages. With the introduction of these new rules, it’s become more difficult getting a mortgage if you have a bad credit rating.

What can be some of the financial barriers when getting a mortgage with bad credit?

If you have a bad credit rating, it’s more likely that you’ll be rejected by mainstream mortgage lenders. There are specialist lenders who can help, but they may put certain conditions in place. 

  • The lender is likely to demand a larger deposit than they would on a conventional mortgage.  
  • Many lenders cap the amount that they’re prepared to lend at 60% of the property value, with just a few lenders prepared to go as high as 80%.
  • Interest rates are likely to be much higher than for a conventional mortgage.  

On the plus side, if you do take out a mortgage from a specialist lender and meet the repayments, your credit rating might start to repair over time. When your credit rating has recovered, you may be able to remortgage to a better deal.

A broker could help you navigate the different options – our broker partner London & Country Mortgages Ltd are on hand to help if you need to talk it through with an expert.

How does a bad credit history come about in the first place?

There are a number of reasons why you might have a poor credit rating. The main reason is typically missing credit card, loan, mortgage or even utility repayments. If you fail to pay back a loan completely, or miss payments on your phone or utility bill, this can seriously affect your ability to borrow money in the future.

In addition, if you’re declared bankrupt, or you’re subject to an Individual Voluntary Arrangement (IVA) or County Court Judgement (CCJ), your credit rating will be affected.

How can I check my credit score?

You can check your credit report for free at Experian (the largest of the three) and Equifax if you sign up to their free 30 day trial – just be sure to cancel before they start charging. CallCredit also provide a free credit check, along with other companies.  

Before you start applying for a mortgage, it would be very sensible to actually find out what your credit rating looks like.

What happens if I don’t have a long credit history?

For young people, in particular, who are looking to borrow for the first time, having no credit history can be similar to having a poor credit rating, as lenders are looking for customers that have shown they can successfully manage debt. 

If you’re thinking of getting a mortgage and you have little or no credit history, you may want to think of sensible ways of building your credit that are manageable for your personal circumstances. Things such as taking out a phone contract or having utility bills in your name and paying this on time can help build up your credit history as well as credit building cards.

When should I apply for a mortgage if I have a bad credit rating?

You might decide that it’s better to wait until your credit history has  improved, as this could give you access to more affordable mortgage deals.  

Alternatively, you could take action to improve your credit rating at the same time as saving for a deposit, once you have a rough idea of how much you can afford to borrow with a mortgage. 

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