Can you get bad credit mortgages?
It’s possible, but it’s much harder than if you have a perfect credit history.
Each lender will have its own criteria for what it considers to be adverse credit and credit problems could include anything from a missed bill payment to having your home repossessed.
Relatively minor credit problems like a single late credit card payment won’t stop you from getting a mortgage. But if you’ve been declared bankrupt or had a county court judgement (CCJ) in the last six years, you’ll struggle to find a lender who’ll accept you.
There are lenders who might consider people who have been rejected for mortgages elsewhere. But you won’t have as much choice as those with no previous credit problems.
That means you’ll probably have to pay a higher interest rate and fees.
What issues can impact my credit?
- Late or missed payments on credit arrangements
- Mortgage arrears
- Previous repossessions
- Had a county court judgement (CCJ) in the last six years
- Debt management plans or Individual voluntary arrangement (IVA)
Applying for a mortgage with credit problems
When you apply for a mortgage the lender will ask whether you’ve had past credit problems, including any defaulted credit card and loan payments, or CCJs.
If you have missed repayments on bills, credit cards or loans in in the past, you’re likely to be asked for extra evidence that you can afford to pay a mortgage now.
The lender might want to see more payslips and bank statements than it would if you had no past credit problems.
You’ll also need to provide everything you would for a standard mortgage application:
- Details of your salary and any other income
- Details your partner’s income, if you’re buying with someone else
- How much deposit you have
- Details of all your outgoings
How to get a mortgage with bad credit
Take some steps in the months before you apply for a new mortgage to increase your chances of being accepted.
Sort your finances
Postpone buying a home until you’re in a stronger financial position.
In the meantime, build your credit rating back up by making repayments for bills and credit cards on time. And save more for your deposit.
Although that could take months or even years, it’ll give you access to more competitive mortgage rates in the future, which will save you money in the long run.
Check your credit record
These services will also show you a credit score, although this is just to give you a general idea of your creditworthiness. Each lender will score you differently against their own criteria.
Rebuild your credit score
Once you’ve assessed your credit problems, you can work on fixing them.
Anything from a single missed payment to bankruptcy can affect your ability to get a mortgage. You should start pushing up your credit score well in advance of a mortgage application by making all repayments for bills and credit on time.
One way to do this is with a credit builder credit card, but only once you feel able to handle the responsibility and repayments.
Save for a bigger deposit
Low-deposit mortgages often have tighter acceptance criteria. The more deposit you have, the better chance you have of finding a mortgage you’re eligible for.
Lenders might ask that you have a larger deposit if you have bad credit – for example around 20-30%, instead of 5-10%.
That’ll give you a lower loan-to value (LTV) of 70-80%, which can be easier to get accepted for.
Accept help from family
If saving that larger deposit is a struggle, most lenders will accept a deposit if it’s ‘gifted’ from a family member. This can’t be a loan and you must be under no obligation to repay the money.
In the future you might find you’re in a position to repay the money. There’s nothing stopping you from ‘gifting’ the money back to them then.
Get a guarantor
If you’re unable to get a mortgage because of bad credit, a family member might be willing to be named as a guarantor.
You both need to consider the implications. The guarantor will have a charge placed against their own home. That means if you default on your mortgage payments, your guarantor will be asked to pay. They could even have their house repossessed if they can’t.
You and your guarantor will be tied to each other financially. Any missed repayments in the future will affect both your credit ratings.
Even if you have a guarantor, you’ll still need to be credit checked to get a mortgage. You could still be turned down due to a poor credit rating.
Speak to an advisor
A mortgage advisor will help you find the right product for your needs and help you with your application. They could help you to find a deal you’re likely to be accepted for with past credit issues.
Should I apply for a mortgage with bad credit?
A mortgage lender will credit score you as part of the process of deciding whether to offer you a mortgage and defaults within the last six years will show up on your credit report.
Because of this, it’s best to wait for credit problems to drop from your credit file, all while making payment for other bills and finance on time to strengthen your credit score.
But that could take months or years. If you’d rather apply immediately, there are a few advantages and disadvantages.
- Quicker – If you find a mortgage now you won’t have to wait years before moving to your new home
- Buy at current house prices – If you do manage to get a mortgage with adverse credit, you’ll avoid future house price rises
- Bigger deposit needed – lenders might be unwilling to lend as much as they would if you had no past credit problems
- Higher interest rates – you’ll have less choice of mortgages so interest rates might be higher
- Broker fees – a mortgage broker will help you apply to lenders that are more likely to accept you. But you’ll pay for their services
What’s the lowest credit score for a mortgage?
There’s no cut-off credit score you need to achieve to get a mortgage. That’s because there’s no such thing as a single credit score that all lenders use. When you apply for a mortgage, the lender will look at your credit record and apply its own credit scoring.
But there are some things you can do to improve your credit score with all lenders:
- Pay utility bills on time
- Don’t miss any repayments for loans or credit cards
- Pay off loans and credit cards if you can – Close down unused credit, for example a credit card you no longer use
- Get on the electoral register
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Bad credit mortgages FAQs
In 2021, the government launched the mortgage guarantee scheme aimed at helping buyers who have only 5-9% deposit.
Not all lenders use the scheme. That means you’ll have less to choose from which might make it harder to find a lender that’s both on the scheme and able to lend to people who’ve had credit problems.
But the lenders that are on the scheme use the same affordability and eligibility criteria as a standard mortgage, which means some might still consider you if you’ve had credit problems.
It’s possible to remortgage with bad credit, especially if your credit problems are quite minor, like a single late payment.
As with any other mortgage applicant, you won’t be eligible for some of the better deals available to those with good credit. Interest rates and fees will be higher.
It’s likely you’ll have to wait until your bankruptcy is removed from your credit record, which can be six years from the date of your bankruptcy
If you’ve fallen behind on mortgage payments, or even had a home repossessed, finding a mortgage again can be quite difficult. But it’s not impossible.
You’ll have to rebuild your credit score by paying all bills on time. And you’ll probably need to use a mortgage adviser to apply to a lender that might accept you – despite having a past repossession.