We work with a huge range of mortgage lenders
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.
What is a bad credit mortgage lender and how are they different from a high-street bank?
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street banks have a strong set of rules that they follow when determining lending criteria – rules that may well seem outdated in a modern world of competitive challenger banks and internet-driven investment collaborations.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
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?
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
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 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 creditHaving 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
A customer utilising only 60% of their available credit is a very strong prospect for lenders.
Step four – keep on top of itRecent 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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