What is bad credit?
Bad Credit or adverse credit, comes in all shapes and sizes, from missed Klarna or credit card payments to bankruptcy.
Usually, when a lender deems someone as having bad credit, it’s because they have a poor, or low, credit rating, either because they have no credit history, or because their credit report displays issues like late payments, defaults, CCJs, bankruptcy or debt relief orders.
Can I get a mortgage with bad credit?
Yes, although bad credit can make some lenders feel hesitant about loaning large amounts if, at all to you, some niche lenders have criteria that are more open and accepting of applicants with poor credit or a low credit score.
We help first-time buyers, next-time buyers, remortgagers, business owners and buy-to-let landlords weigh up the pros and cons of the options that we find for them so that when it comes to applying for a mortgage with bad credit, they feel confident that the lender they choose is going to approve them.
What is a bad credit mortgage?
There isn’t necessarily a product called a bad credit mortgage but there are lenders more equipped and used to lending to people with poor or low credit history.
Debt is more common than you might think and while having bad credit isn’t great if you’re hoping to get a mortgage, it’s not the be-all and end-all. Lots of lenders have mortgage criteria that allow for a less than perfect credit history or debt if it’s affordable in relation to your income.
How are they different from other mortgages?
These types of mortgage agreements carry more risk to the lender who could lose money if you were to become unable to repay your mortgage. That’s why the lenders that accept bad credit can charge higher levels of interest. That can make your mortgage more expensive overall, which might not be ideal.
Some people who take out mortgages with a higher interest rate do so with the aim of switching to a cheaper deal in the future with a remortgage, once their credit score and report has improved.
How does a bad credit mortgage work?
If you have bad credit and you are approved for a mortgage, you will be expected to make monthly repayments of an agreed amount, charged at a level of interest that will either be fixed or variable, depending on the type of mortgage agreement you opt for.
A fixed-rate doesn’t fluctuate and is set for a fixed period of time so you always know how much your repayments will cost.
A variable-rate can change if the Bank of England’s base rate increases or decreases. If the rate were to increase and you had a variable rate mortgage, your monthly repayments would go up. However, if and when the rate drops, your repayments would decrease.
It’s important that you make your mortgage repayments, on time, every month. Make sure you stick to your budget so that the money earmarked for mortgage payments is always available and never miss a payment or make a payment late as this could put your home at risk.
You’ll be required to put down a deposit for a bad credit mortgage. The lender might require you to raise a larger deposit of at least 20-25% of the value of the property, rather than the usual 5-10% but that’s not always the case.
The amount of deposit you’ll need can be affected by lots of different factors and if you decide to work with a bad credit mortgage broker, they can work out how much you’ll need for various lenders and compare which one has the better deal for you.
How to find bad credit mortgage lenders online
Online comparison tools can give a quick snapshot of the mortgage deals out there but unless you’re entering your specific details for individual quotes and then comparing the whole of the market, it is near impossible to find the very best mortgage.
Not all lenders advertise on these sites and many can only be accessed through an intermediary like a mortgage broker. If you want to see an overview of all your choices based on your circumstances including your income, age and bad credit, check your eligibility with a mortgage professional.
What documents do I need to apply for a mortgage with bad credit?
Getting everything together will speed up the process and avoid unnecessary delays.
A new lender may want to see some or all of the following:
Your payslips for the last three months or if self-employed, the last two to three years’ business accounts or tax returns
Your bank statements for the last three months. Proof of commission or bonuses. This may be on your payslips
Your most recent P60 form issued by your employer to show the income and tax paid from the previous tax year
ID documents. This will usually be your passport, but your adviser can guide you as to which documents will be accepted if you don’t have a passport
Proof of address. These will be items such as utility bills, council tax bills or credit card bills.
Will a mortgage lender check my credit history?
Lenders will likely look at lots of factors including your age, income and even the type of property you’re planning to buy.
A key focus for many lenders will be your credit report and they’ll check the various credit reference agencies such as Clearscore, Experian or Equifax, to get a better look at your money management skills.
How far back do mortgage lenders look at credit history?
Usually 6 years, but some lenders judge historical bad credit as less severe and focus on the last 2-3 years of payment history and money management.
We have a guide on this for further information but remember, you can also contact a broker directly via our online chat system.
What can mortgage lenders see on my credit report?
Your current level of debt and available credit; most lenders don’t want to see you using more than 50% of your available credit.
Your repayment history across any credit agreements you hold, including whether you have made payments on time and if you have paid off at least the minimum amount required.
Late payments will generally be seen as a negative and will reduce your credit score.
If you have a bankruptcy, Individual Voluntary Arrangement (IVA), Debt Relief Order (DRO), or Debt Management Plan (DMP) on your credit record, how long it has been on there and whether it has been discharged.
Whether you have any County Court Judgements (CCJs) against your name and how long ago these were issued.
The number of credit applications you have made and over what time period.
Does having bad credit make your mortgage more expensive?
Bad credit, like mispayments on a loan or high-risk and frequent borrowing, can suggest to some lenders that you might be at risk for defaulting on your mortgage or in other words, not keeping up with your mortgage repayments.
Lenders will be concerned with what bad credit you have specifically. They’ll look at the date it occurred and whether the repayments for any debt management plans or loan agreements have been paid in full and on time.
The severity of the bad credit can also impact your ability to get a mortgage and usually the more severe the issue, like multiple CCJS and IVA or bankruptcy, the smaller the choice of lenders.
A limited range of lenders can result in some people with bad credit paying higher interest
rates, as typically banks and lenders charge more to provide mortgages to applicants they deem as “high risk”.
To find the most affordable deal, ask a bad credit mortgage broker to look at your options and calculate which one would be cheaper and more financially sustainable for you.
Why should I check my eligibility before applying for a mortgage with bad credit?
Some people don’t even know they have bad credit because they’ve never looked at their credit reports, so when it comes to applying for a loan or mortgage, they accidentally apply to inappropriate lenders whose criteria they are unlikely to meet. This results in a mortgage rejection all too often.
Always check your eligibility for a mortgage product before applying because if you get declined, you could end up wasting money on mortgage application fees but also, a mortgage rejection will subsequently appear on your credit report for other lenders to see.
This can stop you from getting approved for a mortgage or loan in the future, so to avoid this hassle, check your credit report before approaching a mortgage lender so that you are aware of any issues that could affect your eligibility for a mortgage.
We can help you access your credit files, often for free, so pop us a message using our online chat or give us a call for help with this.
How much can I borrow on a bad credit mortgage?
While your credit score gives an indication of your borrowing history to lenders, there are other factors that can affect their decision to accept you and how much they’re willing to lend.
Your age, employment status, income and outgoings including debt, living costs, travel expenses, utilities and childcare may all be taken into consideration by a lender who is assessing your application.
They’ll want to determine that you can afford your mortgage repayments as well as any other financial commitments that you have. If the loan you are applying for is deemed as unaffordable, a lender will not be able to approve it.
Lots of lenders also use income multiples to work out how much they can lend on a mortgage. If you're considered to be a less 'risky' applicant, a lender may offer you a higher income multiple but typically, borrowers can expect to be able to borrow between 4 - 5 x their annual income.
This certainly isn’t a one size fits all rule, given that there are so many other factors that influence the maximum amount you can borrow, so for advice based on your situation, ask a mortgage broker.
How can you improve your odds of getting a mortgage with bad credit?
Lenders each have a set of criteria they use to determine whether or not they can approve your application, so you need to position yourself as a reliable borrower who repays their debts.
There are a number of other things you can do to enhance your credit-worthiness, including:
Registering to vote
Managing your available credit carefully
Closing any inactive accounts
Paying your bills on time and staying out of your overdraft
Avoiding applying for credit shortly before submitting your mortgage application
Fix any errors on your credit reports
Remove any links to ex-partners or old flatmates with poor credit scores.
Furthermore, to improve your affordability for a mortgage, you could also work to:
How much deposit do I need for a bad credit mortgage?
The size of your deposit can also affect your eligibility for a particular mortgage amount as some lenders set minimum deposit requirements and lower loan to value (LTV) ratios, to further reduce their risk of loss.
A borrower with bad credit may be expected to provide a larger chunk of the property's value upfront but that’s not to say that larger loans can’t be accessed with bad credit.
Some niche bad credit lenders are more willing to lend under higher LTV ratios, though it may be the case that a guarantor needs to co-sign your mortgage or that a higher rate of interest is charged.
Having a larger deposit can open up your choice of lenders and could mean that you borrow less. A smaller mortgage can be more manageable for some borrowers, though understandably, saving a larger proportion of your desired property value isn’t always possible.
There are also affordable homes schemes to consider, like Shared Ownership or Help to Buy, which may be able to help eligible applicants buy a home with either a smaller deposit or a five-year interest-free government loan to help raise up to a 25% deposit.
Bad credit mortgage deposit examples
Property value | 5% (95% LTV) | 10% (90% LTV) | 15% (85% LTV) | 20% (80% LTV) | 25% (75% LTV) |
£180,000 | £9,000 | £18,000 | £27,000 | £36,000 | £45,000 |
£190,000 | £9,500 | £19,000 | £28,500 | £38,000 | £47,500 |
£200,000 | £10,000 | £20,000 | £30,000 | £40,000 | £50,000 |
£210,000 | £10,500 | £21,000 | £31,500 | £42,000 | £52,500 |
£220,000 | £11,000 | £22,000 | £33,000 | £44,000 | £55,000 |
£230,000 | £11,500 | £23,000 | £34,500 | £46,000 | £57,500 |
£240,000 | £12,000 | £24,000 | £36,000 | £48,000 | £60,000 |
£250,000 | £12,500 | £25,000 | £37,500 | £50,000 | £62,500 |
Can i get a mortgage if I have bad credit and no deposit?
100% mortgages don’t technically exist in the UK but if you have bad credit and no deposit for a mortgage or you predict that you’ll have a small deposit once you start saving, there may be alternative routes for homeownership that you haven’t considered.
While you may still need to save a 5% deposit, the below options can help to reduce the hurdle of needing a hefty deposit to secure a home.
You might want to consider:
What is a loan-to-value rate for a bad credit mortgage?
Loan-to-value (LTV) ratio is a number lenders use to determine how much risk they're taking on a mortgage. A smaller loan can be less of a risk to a lender.
Having a lower LTV can also improve your affordability for a loan because the amount of loan you need in comparison to the value of the house is lower.
Let’s say you want to buy a house worth £200,000. The minimum deposit you’ll need is 5% (£10,000), but a chunkier deposit might help you access better deals and by having more equity upfront, you reduce your loan-to-value ratio or LTV.
The loan-to-value calculation
Your LTV is worked out by dividing the amount you need for a mortgage by the full value of the property.
So, if you had a 40% deposit for a £200,000 house, you’d have £80,000 of your own and would need a mortgage of £120,000.
£120,000/£200,000=0.6
To express this as a percentage, multiply the answer by 100:
0.6 x 100=60%
Therefore, your LTV would be 60% because you’d need 60% of the property's market value.
How does my credit history affect my getting approved for a mortgage?
Some lenders have LTV requirements that the borrower must meet to be eligible for their products, for example, a lender might state that you need an LTV below 50% because you have a CCJ from two years ago, or in contrast, a different lender might only ask for an LTV below 30%.
Every lender and every situation is different, which is why getting advice and having someone do the maths for you can be a real relief.
Can a first-time buyer with bad credit get a mortgage?
First-time buyers with bad credit or a low credit rating aren’t excluded from homeownership and while there may be fewer lenders to choose from if your bad credit is severe or recent, you may still be able to get a mortgage to buy your first property.
Most high street lenders have criteria for mortgages that prevents them from lending to a person with bad credit. The risk associated with a borrower with a less than perfect credit history can be deemed too much for some lenders, who prefer to see a credit history that presents a good track record of careful borrowing and repayment.
While our brokers at The Mortgage Hut still consider high street lenders for the first-time borrowers they help, they also have access to a range of specialist lenders who can sometimes be more equipped to lend to borrowers with:
Missed payments
Late payments
CCJs
IVAs
Debt relief orders
Bankruptcy
Low credit score
Avoid getting rejected for a first-time buyer bad credit mortgage
Keep in mind that every time you apply for a mortgage or a loan and get declined, a record of this is noted on your credit report, for future lenders to see. Recent and frequent credit rejections can work against you when applying for a mortgage as lenders may question why previous lenders refused to lend to you.
To avoid getting rejected for a first-time buyer mortgage because of your bad credit, a mistake on your application or because you haven’t met the eligibility criteria of your chosen lender, ask a broker for help.
Most specialist bad credit lenders will only accept applications made via a trusted intermediary like a mortgage broker anyway.
Our brokers understand how bad credit mortgages work and how your bad credit could affect your repayments as a first-time buyer.
It’s their responsibility to find you the most affordable and manageable mortgage so that you can make your repayments on time and in full, as after all, a mortgage agreement is a long term commitment with some contracts spanning 40 years.
Can I get a mortgage with bad credit if I’m over 50?
Some mortgage lenders have age caps that prevent them from being able to lend to people over a certain age, typically 70-80. Mortgage lenders want to reduce the risk of loss and an older borrower, closer to retirement, could present a higher risk, especially if their income is due to reduce once they stop working.
Many lenders do accept income from stable investments, pensions, self-employment and part-time/full-time employment.
Ultimately, it’s your affordability as a whole, including your bad credit, that affects your choice of lenders and products.
Having bad credit on top of being a borrower over 50, can hinder your opportunities for getting the greatest deal but there may still be competitive routes to consider.
The length of time you wish to repay your mortgage will also affect your ability to get approved. A shorter-term time could be a better option if you want to pay less interest overall but your monthly repayments will likely be larger, so you’ll need to consider your affordability carefully.
Think about whether you could repay your mortgage if your circumstances changed or if you were to suddenly face a big expense.
A longer-term time might make your repayments more manageable as they’re spread over a longer period of time but you’ll probably pay more in interest overall, making the mortgage more expensive.
Getting a mortgage with bad credit if you’re over 50
Borrowers over 50 with bad credit still have possibilities to consider. Ask a mortgage broker to look at your circumstances, check your credit report and present you with the most viable options.
They’ll take the time to get to know you and what you’re looking for from a mortgage, whether that’s a remortgage to fund a kitchen renovation, equity release or a residential mortgage to buy a second property.
Can a self-employed person get a mortgage with bad credit?
If you’re self-employed, know that it is possible to get a mortgage with bad credit but your choice of lenders might be reduced. Lenders tend to view self-employed borrowers as higher risk, especially if their income is:
Fluctuating
Unpredictable
Unstable
Risky
Being a contractor or limited company director doesn’t necessarily mean your income is patchy and there are lenders more open to providing mortgages, even if there is an incident of bad credit.
If the bad credit is severe, like a recent CCJ, an IVA or bankruptcy, you might benefit from seeking specialist advice from a mortgage broker as they can cut through the multitude of lenders and select the ones that may be able to help you.
Lots of people decide to file their own tax returns and while this can save money on an accountant, some lenders prefer accounts that have been signed off and filed by a chartered accountant. However, If you do file your own self-assessment tax return online you can print off your SA302s directly from HMRC and these can be used to demonstrate your income for a lender to assess.
Getting a self-employed mortgage with bad credit
We have mortgage brokers in our team that can help self-employed workers, contractors and freelancers in various scenarios. They use their expertise and knowledge of the market to help people:
Use the latest years income figures for affordability purposes
Use mixed-income for dual self-employed/employed, or with a complicated mix of company income sources
Get a mortgage with both salary and dividends, plus utilising any business retained profits when appropriate
Get a mortgage with one year’s company or sole trader trading figures
Can a key worker with bad credit get a mortgage?
If you are a key worker with poor credit or a low credit score and you’re looking for a mortgage, there could be several options available.
Lots of people come to us believing they won’t be eligible for a mortgage because they have missed a payment for a phone bill or because they’ve had a CCJ in the past.
This isn’t the case and there are a number of UK lenders that will still lend to a person with a less than perfect credit history. Your ability to get a mortgage will depend on lots of factors, including how much you earn and even how long you’ve been in your current position.
If you’re a self-employed key worker i.e. you’re bank staff for the NHS, you’ll need a minimum of a year’s work history.. Most lenders like to see a good record of stable income, so if you have two years or more, that can increase your choice of lenders. A good selection of lenders gives you a good comparison of interest rates.
How expensive is a mortgage for a key worker with bad credit?
Lower interest rates are usually reserved for borrowers with a high credit score. That being said, there are still affordable mortgage agreements for key workers with bad credit to be had and low-interest rates don’t necessarily equate to a better deal overall. You’ll still need to consider things like early repayment fees, exit fees and deposit requirements.
Always read a mortgage agreement carefully, preferably with a professional who can check the terms and conditions. Sometimes a mortgage deal can look appealing but after reading the terms, you might feel that the risk and costs associated with it are just too expensive overall.
Asking a mortgage broker for their advice is a good place to start if you’re thinking about getting a mortgage, especially if you have bad credit. They can help you access your credit report (or you can download it yourself from various places like Checkmyfile, Experian and Clearscore).
They’ll look at your credit report and show you the things that might raise concerns for some lenders. Once they have a clear overview of your circumstances, including your income and your level of debt, they can work out which lenders are most suitable for you.
Rather than you making an application and potentially getting rejected, they can check your eligibility and let you know whether you’d most likely get accepted or rejected.
A good mortgage broker will never recommend a lender that you’ll likely get rejected from.
It’s their job to find you a lender with affordable terms so that when you get approved, the repayments are manageable and have the flexibility you need.
Key Worker mortgages with bad credit - what are my options?
The First Homes Programme
First Homes are discounted market sale units which:
Are discounted by a minimum of 30% against the market value.
Are sold to a person or persons meeting the First Homes eligibility criteria.
On their first sale, properties in the scheme will have a restriction registered on the title at HM Land Registry to ensure this discount (as a percentage of current market value) and certain other restrictions are passed on at each subsequent title transfer.
After the discount has been applied, the first sale must be at a price no higher than £250,000 (or £420,000 in Greater London).
Right to Buy
Right to Buy allows qualifying council tenants to purchase their council houses from their local authorities at a discounted rate.
It’s only available in England and Northern Ireland.
The Right to Buy discount is up to £82,800 and £110,500 in London.
If you have serious credit issues like recent council debt, a CCJ or bankruptcy, you might find it difficult to find a lender.
A specialist mortgage broker can use their network to search for niche lenders.
If you don’t qualify for any now, they can advise you on what to do next to apply in the near future if it is affordable for you to do so.
Your overall circumstances including your income will determine your ability to qualify for a Right to Buy mortgage with bad credit.
Should I buy a house with bad credit?
There are mortgage deals that can be accessed for borrowers despite bad credit issues and it may be the case that your circumstances allow you to meet criteria for mortgage deals with a competitive interest rate and terms.
If after checking your eligibility for a mortgage you find that the deals are too expensive, you could choose to wait, put some time between you and your credit issues, improve your score and apply in the near future.
That being said, if you have bad credit, you may still have a lot of options to compare and therefore, you could be able to get onto the property ladder sooner than you think.
Can I get a remortgage if I have bad credit?
Yes, we’ve helped lots of homeowners, buy-to-let landlords and commercial property owners remortgage with bad credit.
Remortgaging with your current lender might be a possibility but if your circumstances have changed and you now have bad credit, they’ll take this into consideration when assessing your eligibility for their remortgage product.
While you might have been accepted for a mortgage product in the past, it doesn’t necessarily mean you’ll get accepted now. High Street lenders and mortgage lenders in general, tend to reserve their best interest rates for borrowers with a good credit history and a lower DTI ratio.
A specialist lender might be more flexible and have eligibility criteria that are more accessible to people with:
Missed payments
Late payments
CCJs
Debt relief orders
Mortgage arrears
Repossessions
Bankruptcy
In contrast, even with your bad credit, you may still be in an advantageous position to remortgage. Especially if your income is stable, sufficient to cover the repayments of your remortgage and you have equity. Usually, though not always, having more equity is better.
Getting a remortgage with bad credit
The most important thing to ask yourself when comparing remortgages is, “Can I afford the repayment for the full duration of the remortgage?” If you miss a payment, you’ll likely be charged additional interest of a late payment fee and if you were to continue to default on your repayments, you could lose your property.
Remortgaging with bad credit is possible but ideally, you need to speak to a mortgage broker who can look at your specific situation, including the complexity of your bad credit.
Some lenders will consider the reason for the bad credit, so discuss this with your broker to prepare for an application and find the lenders that may be more willing to loan to you.
Can I remortgage to consolidate debt if I have bad credit?
It’s not impossible and there are lenders in the UK that accept borrowers with CCJs, IVAs and even people that have been bankrupt. So, depending on your circumstances, you may be eligible to remortgage to consolidate debts. This would involve remortgaging for an amount that would repay your previous mortgage as well as repay your debt.
Debts that can be consolidated with a mortgage include:
Credit card debt
Car finance agreements
Personal loans
The benefit of doing this is that you have one monthly repayment for your debts rather than several loan repayments to different creditors. This can alleviate some of the stresses that repaying debts can bring but like any financial agreement, there are some serious considerations.
In some cases, but certainly not all, the interest rate charged for a remortgage is less than that for a credit card, personal loan or car finance agreement. Therefore, shifting all your debt to one remortgage can help to reduce your monthly cost for your debt.
A remortgage to consolidate debt is a big decision that can impact your finances in the long term, so getting the right agreement, with affordable repayments matters.
