Wanting a mortgage but fearing an instant rejection for your adverse credit history is typical of many prospective homeowners today, and if you have only ever tried to get a mortgage from one of the high-street banks and suffered that heart-breaking rejection then that fear is understandable. But it’s unnecessary – if you know who to go to then a fantastic deal is always possible.
At The Mortgage Hut, we work with a huge range of mortgage lenders including those who don’t turn their nose up at bad credit scores. In this article we look at the bad credit mortgage brokers and subprime mortgage lenders and show you how to get the mortgage you need without worrying too much about your past.
Bad Credit Mortgage Lenders
We work with a huge range of mortgage lenders
What is a bad credit mortgage lender and how are they different from a high-street bank?
Every mortgage provider is a business looking to make money, but that doesn’t mean they all make money the same way, nor do they all look at risk with the same eyes.
The high street banks are merely one of a group of mortgage lender options and in many cases have become a little stuck in their ways. With a strong presence and history built up (in some cases) over more than a century of business, high street banks have a strong set of rules that they follow when determining lending criteria – rules that may well seem outdated in a modern world of competitive challenger banks and internet-driven investment collaborations.
Other lenders may have less focussed branding, but they can also be a lot more flexible and offer similar rates to the high street branches without the strict criteria.
So called ‘bad credit lenders’ don’t suffer from poor risk assessment, far from it, instead they grow in strength with a listening ear and willingness to understand circumstances.
The high street banks are merely one of a group of mortgage lender options and in many cases have become a little stuck in their ways. With a strong presence and history built up (in some cases) over more than a century of business, high street banks have a strong set of rules that they follow when determining lending criteria – rules that may well seem outdated in a modern world of competitive challenger banks and internet-driven investment collaborations.
Other lenders may have less focussed branding, but they can also be a lot more flexible and offer similar rates to the high street branches without the strict criteria.
So called ‘bad credit lenders’ don’t suffer from poor risk assessment, far from it, instead they grow in strength with a listening ear and willingness to understand circumstances.
Interest rates and deposits – the downside to mortgages for bad credit applicants
Avoiding the credit check – mortgage lenders that don’t credit score
The holy grail for the person suffering from a history of adverse credit is, of course, the lender that doesn’t check credit at all. Unfortunately, that doesn’t exist – not entirely.
Mortgage lenders must take an interest in your credit history. To not perform any sort of credit check at all would be negligent on their part. However, once they have undertaken that credit check, the choice as to what they do with the information is theirs.
We work with many lenders who simply ignore the ominous credit score that hangs over your head like an illuminated neon sign and look deeper to understand you as a person and prospective customer. They know that a calculated number doesn’t tell the whole picture and that only you can truly understand the circumstances that it tries to represent.
We like to work with lenders willing to talk.
Mortgage lenders must take an interest in your credit history. To not perform any sort of credit check at all would be negligent on their part. However, once they have undertaken that credit check, the choice as to what they do with the information is theirs.
We work with many lenders who simply ignore the ominous credit score that hangs over your head like an illuminated neon sign and look deeper to understand you as a person and prospective customer. They know that a calculated number doesn’t tell the whole picture and that only you can truly understand the circumstances that it tries to represent.
We like to work with lenders willing to talk.
What credit report issues affect a mortgage for a bad credit first time buyer?
Mortgage lenders consider your credit in terms of severity.
Examples of low-severity issues include a missed credit card payment or bounced direct debit – the kind of thing that happens to everyone once in a while.
Medium-severity issues can include defaulting on a payment or a CCJ – these are taken seriously by a prospective lender and are likely to affect the terms of the deal you are offered – with a larger deposit, increased interest rate or both.
Very-severe issues include the various forms of insolvency – bankruptcy, individual voluntary arrangements and debt relief orders. These can have a significant affect on any mortgage application, especially if they are recent, but even the most severe issue can be overcome with the right lender.
Time plays a huge factor too – your credit file records everything for the past six years, but things that are four or five years old are not too likely to bother a potential lender. Recent issues, those in the last year or two, are the most damaging.
Examples of low-severity issues include a missed credit card payment or bounced direct debit – the kind of thing that happens to everyone once in a while.
Medium-severity issues can include defaulting on a payment or a CCJ – these are taken seriously by a prospective lender and are likely to affect the terms of the deal you are offered – with a larger deposit, increased interest rate or both.
Very-severe issues include the various forms of insolvency – bankruptcy, individual voluntary arrangements and debt relief orders. These can have a significant affect on any mortgage application, especially if they are recent, but even the most severe issue can be overcome with the right lender.
Time plays a huge factor too – your credit file records everything for the past six years, but things that are four or five years old are not too likely to bother a potential lender. Recent issues, those in the last year or two, are the most damaging.
Credit history vs. affordability
A great deal of focus is given to your past credit dealings and the report it generates, but to a mortgage lender, affordability carries a similar weight.
Affordability is a score based on the amount of spare money you have each month after paying your regular outgoings. If you are close to the line and what comes in tends to immediately go out, then your affordability is low, and you may struggle to convince a mortgage lender to take you on. If your salary provides a good buffer between your income and your outgoings, however, then a display of poor credit history can be easily turned aside.
Affordability is how the lender calculates the level of your maximum mortgage amount. With a strong show of affordability, higher multiples of your salary are used to determine your top figure such as 5x and 6x salary. A weaker level of affordability might lock you to a 3x or 4x mortgage.
Affordability is a score based on the amount of spare money you have each month after paying your regular outgoings. If you are close to the line and what comes in tends to immediately go out, then your affordability is low, and you may struggle to convince a mortgage lender to take you on. If your salary provides a good buffer between your income and your outgoings, however, then a display of poor credit history can be easily turned aside.
Affordability is how the lender calculates the level of your maximum mortgage amount. With a strong show of affordability, higher multiples of your salary are used to determine your top figure such as 5x and 6x salary. A weaker level of affordability might lock you to a 3x or 4x mortgage.
Ways to improve your credit rating
Step one – have patience
Time is a huge factor when trying to rid yourself of bad credit. As the months tick by, those older issues become less and less important.
Time also allows you to save longer for a larger deposit and clear off debts to improve your level of affordability. Just don’t make the mistake of overdoing other credit and potentially creating new (and recent) black marks that may hinder your chances of a mortgage.
If you don’t have a credit card, it’s worth getting one just to show this behaviour. Just as it is possible to get a mortgage with bad credit, so too can you apply for specialist credit cards designed to help you build up your credit score.
Time also allows you to save longer for a larger deposit and clear off debts to improve your level of affordability. Just don’t make the mistake of overdoing other credit and potentially creating new (and recent) black marks that may hinder your chances of a mortgage.
Step two – use your current credit
Having a credit card and using it well shows an understanding and responsibility with credit and will improve your score a lot more than hiding the card in a drawer until an emergency. Don’t run from your available credit, instead use it well and build up a history of good repayments.If you don’t have a credit card, it’s worth getting one just to show this behaviour. Just as it is possible to get a mortgage with bad credit, so too can you apply for specialist credit cards designed to help you build up your credit score.
Step three – live within your means
If you are constantly living to the peak of your available credit – perpetually overdrawn and at the limit of your credit cards, then work out a budget plan for a few months to reign in the spending.
A customer utilising only 60% of their available credit is a very strong prospect for lenders.
These are Experian, TransUnion (formally Call Credit), and Equifax. Register and sign up to their services to understand your own credit report and there will be far fewer nasty surprises.
A customer utilising only 60% of their available credit is a very strong prospect for lenders.
Step four – keep on top of it
Recent changes to data rights mean that you can check your credit rating for free with the three major credit reference agencies (CRAs) in the UK.These are Experian, TransUnion (formally Call Credit), and Equifax. Register and sign up to their services to understand your own credit report and there will be far fewer nasty surprises.
Bad credit mortgages with The Mortgage Hut
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