Bad credit mortgages

You might be worried that you won’t be able to get a mortgage if you have a bad credit rating - but it could be possible. Here’s what you need to know to find the right deal for you.

You might be worried that you won’t be able to get a mortgage if you have a bad credit rating - but it could be possible. Here’s what you need to know to find the right deal for you.

Daniel Evans
Mortgages expert
11
minute read
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Posted 9 DECEMBER 2019 Last Updated 1 DECEMBER 2021

Can I get a mortgage with a bad credit rating?

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 could 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 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.

You might also be asked for a guarantor – usually a parent or older relative. This will reassure lenders that your monthly payments will be covered if you can’t pay them.

Can I get a mortgage if I’ve been bankrupt, got an IVA or CCJ?

The amount of time that’s passed since any County Court Judgment (CCJ) or bankruptcy can be a deciding factor. In the case of bankruptcy, most lenders will only consider your application after six years have passed since the bankruptcy discharge.

Although a CCJ can stay on your record for six or seven years, some lenders may consider your application after three years – as long as your debt has been fully paid back.

In the case of an Individual Voluntary Arrangement (IVA), you may have to wait up to four years after successfully completing a debt management plan before you can apply for a mortgage.

If you do take out a mortgage from a specialist lender and meet the repayments, your credit rating might start to repair over time. And once 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 partner London & Country Mortgages Ltd can help if you need to talk things through with an expert.

Remember, you could lose your home if you’re unable to keep up your mortgage payments.

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

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

If you have a history of not paying back money in full or on time, lenders will be more wary about lending you money. That’s especially true given how large the sums involved in mortgages are.

Also, there are fewer lenders willing to offer bad credit mortgages, so there’s less competition and less choice available.

How has the coronavirus pandemic impacted getting a mortgage with bad credit?

The pandemic has had a massive impact on mortgage lending and the UK housing market as a whole. The Bank of England reduced interest rates to a historic low to counter the impact that COVID had on the economy, but rates have since risen. Mortgage lenders provided over 2.9 million mortgage payment holidays to help struggling homeowners during the pandemic.

The uncertainty about interest rates, unemployment and the accumulated debt burden means that lenders are far more cautious about lending. Clearly, if you have bad credit, you’ll be seen as a bigger risk so this could affect your chances of getting a mortgage with bad credit.

What are bad credit mortgages? 

A bad credit mortgage is a name for mortgages that are targeted at potential customers with a poor credit history. For example, customers with County Court Judgments (CCJs) against their name, Individual Voluntary Arrangements (IVAs) or bankruptcy. Mortgage lenders want to be sure that they’ll get back the money they lend to you. So to minimise any risk, they tend to offer lower amounts of money and charge you more, to offset any losses they might make from this kind of loan.

In the majority of cases, bad credit mortgage deals tend to be fixed-rate, fixed-term mortgages, with an introductory period of two or five years and an LTV of 75% or lower.

The LTV (loan-to-value) is the amount of mortgage you can get against the value of the property. Most mortgage deals for people with bad credit have an LTV of up to 75%. This means that the mortgage lender is prepared to lend you up to 75% of the property value – so you’ll need at least a 25% deposit for a chance of being accepted.

How can I get a mortgage with bad credit?

If you’re trying to get a mortgage but you have adverse credit, there’s a few steps you can take to improve your chances:

  • Build up your credit score. It may take a while, but cleaning up your credit history can improve your chances of getting a mortgage. Read our guide to improving your credit score.
  • Ask for help from family. You may be able to secure a better deal by enlisting a trusted friend or family member to act as a guarantor on your mortgage.
  • If you’re buying a home with a partner, consider their credit history too. If they’re in debt or have adverse credit, see what steps you can take together to improve their financial situation before you buy.
  • Explain bad credit. Lenders are more likely to forgive a black mark on your credit history if you have a reasonable explanation and can show the steps you’re taking to improve your financial situation. You can add notes of correction to your credit file for lenders to see.
  • Don’t be high risk. Prove to your potential lender that you can afford to pay them back. Make sure you have a stable income when you apply and take some time to get your finances in order.
  • Consider a cheaper property. It may mean accepting less than your dream house, but it could be the difference between getting accepted for a mortgage or not, especially if it means you’re able to offer a higher deposit.
  • Save up for a bigger deposit. The more you can pay as a deposit, the more likely you are to be accepted for a mortgage. If your family is willing to help, they may be able to gift you the money for a larger deposit.
  • Be honest. You’re asking for a lot of money, so any potential mortgage providers will be thorough when they conduct their searches. If you withhold information, they’ll find out and you’ll look like a very shaky prospect for a loan.
  • Get advice. Speak to a mortgage broker to get an idea of what you’re likely to be accepted for, given your individual circumstances, and what you can do to improve your chances.

Bad credit mortgage rates

Bad credit mortgage rates will typically be higher than normal interest rates. Lenders don’t usually advertise rates specifically for bad credit, though. This is because most lenders will consider bad credit applications on a case-by-case basis. The rate you might get could depend very much on your individual circumstances. For example:

  • What type of credit issues you have
  • How recent they were
  • Whether any credit issues are still outstanding
  • Your deposit and the amount you need to borrow (LTV)

Bad credit mortgage rates also depend on the current market rates for general mortgages and the base rate set by the Bank of England.

The pros and cons of a bad credit mortgage

If you’ve already found the house of your dreams, here are some pros and cons of applying for a bad credit mortgage rather than waiting to improve your credit score.

Pros

  • There are deals out there – shopping around and comparing mortgages is one of the best ways to find a deal to suit your situation.
  • You’ll get on the property ladder sooner.
  • If the market is slow, you’ll have a better chance of negotiating a better price for the property you’re after.

Cons

  • If you wait to build up your credit score, you’ll have a wider range of ‘normal’ mortgage deals to choose from.
  • Higher rates – you could end up paying higher interest rates if your credit score is still poor.
  • Bigger deposit – lenders may only consider your application if you have a decent chunk of deposit to put down.

If you do decide to go ahead with a bad credit mortgage, you may be able to remortgage to get a more favourable deal once your finances are under control and your credit rating has improved.

Can I remortgage with bad credit?

Getting a new deal with your current lender might be a good option if you have a bad credit record as you won’t be subject to any further credit checks – provided you’ve kept up with your mortgage repayments and you’re moving to a like-for-like deal. In other words, you’re switching your existing mortgage arrangement to a new rate, but without any changes to the outstanding balance, term or repayment method.

If you’re considering switching to a new lender, they’ll apply the same approach to remortgaging as they do to lending for new mortgages. This means interest rates could be higher and the amounts you can borrow may be lower if you’ve had bad credit. Potential new lenders will take a long, hard look at what you can and can’t afford, especially if you’re asking to borrow even more money.

If you’re looking to remortgage with bad credit, speak to an advisor at our partners London & Country. They can check your eligibility with a variety of different lenders who will remortgage to homeowners with bad credit.

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

There’s a number of reasons why you might have a poor credit rating – also known as adverse credit. Typically, the main reason is missing credit card, loan, mortgage or even gas or electricity payments. If you fail to pay back a loan completely or you missed payments on your phone contract or utility bill, this can seriously affect your ability to borrow money in the future as it makes you look unreliable. Even paying bills a few days late will be noted on your credit file and can impact your credit rating, although on its own it’s unlikely to stop you from getting a mortgage.

Being declared bankrupt, or being subject to an Individual Voluntary Arrangement (IVA) or County Court Judgement (CCJ), will also negatively affect your credit rating. These sorts of serious marks on your credit file will definitely play into the decision of any potential mortgage provider.

Having adverse credit doesn’t necessarily mean you’ve been financially irresponsible in the past, it could also refer to a lack of credit history. That could be the case if you’ve recently moved to the UK or if you’ve never held a bank account, credit card or registered to vote.

How can I check and improve my credit score?

You can check your Experian credit score for free on the Meerkat app. If you’re looking for a mortgage, it’s worth checking your credit history at Equifax and TransUnion (formerly Callcredit) too, as different lenders use different credit-checking agencies.

First, you’ll want to check everything on your credit file is correct and flag anything you don’t recognise. Then, if you do have adverse credit, you can work on building up your credit score. You’ll have to be patient, though, as it can take up to six months to see any improvements in your score.

Read our guide to building your credit score.

Bad credit mortgages for first time buyers

For young people who are looking to borrow for the first time, having no credit history can be similar to having a poor credit rating. That’s because lenders are looking for customers who have shown they can successfully manage their credit. 

If you’re thinking of getting a mortgage and you have little or no credit history, you may want to think of sensible, manageable ways of building your credit. That might be taking out a phone contract or having utility bills put in your name. Paying these on time can help build up your credit history. Another way to build credit might be through a credit building card.

That’s not to say it’s impossible for first-time buyers with no credit history to get a mortgage. Although it can limit your choice of mortgage deals, lenders won’t consider your situation as serious as, say, someone with a CCJ.

Bad-credit mortgages for home movers?

If you have a bad credit history and you’re moving home, check whether your current mortgage deal is portable and if your provider will consider further lending. You could also ask a mortgage broker whether it’s worthwhile considering a different lender, based on your current credit history.

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

If you’ve fallen in love with another property, make sure you’re certain about how much you can afford to pay if your mortgage deal is likely to be more expensive. And don’t forget to take into account the additional costs, like stamp duty, legal fees and moving costs.

Avoid making multiple mortgage applications, though, as you could potentially damage your credit score even further.

What is the lowest credit score you can have and get a mortgage?

There isn’t an absolute minimum credit score you can have and still get a mortgage because, ultimately, it’s up to the lender. Most credit rating agencies in the UK rank people’s credit in one of five categories, depending on their score: excellent, good, fair, poor and very poor. Some mortgage providers will only consider applicants with a ‘good’ or ‘excellent’ credit history, while others specialise in poor credit mortgages.

However, because of more stringent rules brought in by the UK government after the 2008 financial crisis, mortgage providers are required by law to look carefully into whether you’re in a position to afford your mortgage payments. That means weighing up your income and expenses alongside your credit history, the value of the property you want to buy and the size of the loan. Because of these new rules, you may find there are fewer mortgage options available for people with adverse credit.

If you’re looking for a mortgage but you’re worried about adverse credit affecting your chances, it’s a good idea to speak to a mortgage adviser. They can explain your options and help you search for eligible mortgage deals.

For expert advice, speak to our trusted partners at London & Country Mortgages.

What do I need to compare bad credit mortgages? 

To compare bad credit mortgages, you’ll need to have the following information:

  • Details of your salary and any other income
  • If you’re buying with someone else, details of their income
  • Whether you’re going to live in the property or let it out
  • If you’re a first-time buyer
  • How much you want to borrow and what your deposit will be
  • If you’re getting help from a Government scheme to buy your home
  • Details of outgoings for affordability checks
  • A copy of your full credit report, either for your own use or to help a mortgage adviser check which lending criteria you meet

Your home may be repossessed if you do not keep up repayments on your mortgage.

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Why use Compare the Market? 

We compare deals from leading mortgage providers and make it easy for you to find and compare bad credit mortgages. We also work with the UK’s leading mortgage advisers London & Country Mortgages Ltd.

Dan Evans

From the Mortgages team

What our expert says...

“Don’t despair. If you have bad credit it’s still possible to find a mortgage. And if you can manage your money well and improve your credit rating, you’ll have greater choice.” 

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