Bad Credit Mortgages

Find out how to get a mortgage with bad credit, the eligibility requirements and the options available to you.

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While getting a mortgage in today’s market can be challenging if you have bad credit, it isn’t impossible. In fact, an increasing number of lenders assess mortgage applications manually, ignoring any credit score declines. It's important in the world we live in today to understand as a lender that during people's lives they will hit bumps in the road.

Finding those lenders, however, and working out if they’re likely to approve your application can be complicated and confusing - which is where The Mortgage Hut comes in. We know the market, including which lenders offer bad credit mortgages, and what it takes to get your application approved. It's important that a mortgage application is packaged in the correct way, with logic that a lender will accept and reasoning to explain the adverse credit. You only get one opportunity to make an application, so make sure you're dealing with a broker who know what they're doing.

What is a bad credit mortgage?
What does it mean if you have a bad credit score?
How does a bad credit score affect your chances of getting a mortgage?
How to get a mortgage with bad credit?
Credit scores - How important are they and how do they work?
What is a good credit score? 
How to improve your credit score? 
Affordability assessment for a bad credit mortgage
Benefits of working with a bad credit mortgage broker
Making repayments with a bad credit mortgage
How to apply for a bad credit mortgage

What is a bad credit mortgage?

Technically, there is no such thing as a bad credit mortgage. It’s simply a term used to describe the kinds of mortgages for which you are likely to be approved if you have a bad, or poor, credit rating. Bad credit mortgages will often come with higher interest rates, allowing lenders to offset the risks of lending money to someone with a bad credit rating and could include other restrictions such as a maximum age limit for the person applying. In some cases, bad credit mortgage lenders will set lower loan to value (LTV) ratios, further reducing their risk.

The LTV ratio lets you know what percentage of the value of the property you want to buy the lender is willing to offer you; you will need to cover the remaining value through a deposit. Where there is a higher LTV available, lenders may ask for a guarantor to co-sign your loan.

What does it mean if you have a bad credit score?

The term bad credit is used to describe a person who has a poor, or low, credit rating, either because they have no credit history, or because your credit history includes late payments, account defaults, county court judgements, bankruptcy, debt management plans, or debt relief orders. Lenders also don’t like to see too many applications for credit within a short time period. These are known as hard searches and can suggest to a lender that you aren’t in control of your money. If you’re interested in applying for a mortgage with poor credit, it is a good idea to hold off on any other credit application until you are approved.

How does a bad credit score affect your chances of getting a mortgage?

The lower your credit score, the less likely you are to be approved for a loan or a mortgage from a traditional high street lender such as a bank or building society, although you may be able to apply for a loan through a credit union if you are a member. Credit Union loans, however, tend to be smaller and many do not offer mortgages. This doesn’t mean you won’t get approved for a mortgage, just that you will need to look at specialist lenders; those who are less risk averse and are willing to consider offering borrowers adverse credit mortgages.

How to get a mortgage with bad credit

If you have a bad, or poor, credit score and need to apply for a mortgage, the first thing you will need to do is check your credit score so you understand where you are starting from and what lenders will see when they run your credit report. You could find that your score isn’t as bad as you thought, and you are eligible for a standard mortgage. Or you may find errors on your report that need correcting, resulting in an improved credit score without you having to do anything.

Next, you need to create a budget that includes all your income and expenditure. Be honest with yourself here because otherwise you risk thinking that you can afford larger mortgage repayments than you actually can. Include everything you spend money on, down to the coffee you buy yourself on the way to work in the morning. Once you know how much you spend each month, you will have a realistic idea as to what you can afford to spend each month on a mortgage.

Use this figure to start looking at potential mortgages and mortgage lenders. This is a perfect time to give us a call. One of our experienced advisors will go through your finances with you, helping you to work out which mortgages you can apply for and the size of deposit you’ll need. If you aren’t ready to speak to us yet, we have a really useful mortgage calculator on our site that’s free for you to use. 

Avoid any hard searches as these could negatively impact your credit score and your chances of getting approved. When you are ready to apply, only apply for mortgages you are likely to get approved for - remember, just because you have bad credit and you’re applying for bad credit mortgages, it doesn’t mean the lender will say yes.
How to get a mortgage with bad credit

Credit scores - How important are they and how do they work?

Your credit score gives lenders an idea as to how well you manage money and the level of risk they are taking if they loan you money. The lower your score, the higher the risk lenders will consider you to be.

Lenders look at your credit score as well as your ability to make repayments before deciding whether to approve any credit application, including credit cards, loans and mortgages. Generally, they use reports from one of the two main credit reference agencies (Experian and Equifax) who calculate your credit score and produce a credit report based on:

  • 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.
Some of these will have a greater impact on your score than others. However, none stay on your credit report forever: Late payments, IVAs, County Court Judgements (CCJs) and bankruptcy are removed after six years. 

Not having a credit history can have a negative impact on your credit score in just the same way as late payments. Young people, for example, or those who’ve recently moved to the UK may find they have no score simply because they haven’t had time to build up a good one. Lenders always want to be able to see someone payment history to understand and calculate risk.

Regardless as to the reasons, if you have a bad credit rating, your ability to get any type of credit will be limited and if you’re considering buying a new home, you’ll be best speaking to one of our specialists, who can help even if your bad credit is current.
Credit scores - How important are they and how do they work?

What is a good credit score?

Each credit reference agency calculates your credit rating slightly differently and has a different scoring system. Which means that what counts as a good credit score will depend on which of the three major agencies your lender uses. However, in general, a good credit score is considered to be at least:

  • 420 out of 700 for Equifax
  • 880 out of 999 for Experian
Anything less than this and you may struggle to be approved for a mortgage and need to look at lenders who offer people bad credit mortgages.

It's important to note, that some specialist lenders do not credit score, so if your score isn't great, it's not the end of the world. Our mortgage specialists are on hand to help!

You can check your credit score for free through any and all of the credit reference agencies, each of which have online portals that make it a quick and easy process. It is worth registering with all three because they have such different ways of assessing your credit history. Sign up for monthly updates on your score too, if these are available, so you are made aware of any changes, good or bad, in good time.
What is a good credit score?

Because we play by the book we want to tell you that...

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

There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.

How to improve your credit score

If you aren’t sure you will get approved for a mortgage or are hoping for a better interest rate or LTV ratio than you have been offered, you might want to wait before applying and work instead on improving your credit score. There are plenty of ways in which you can do this, and, with the following, you should see a difference - even if only a small one - within a few months.

  • Check your credit file
It is a good idea to check your credit score and review the information held in your credit file regularly. This way, you’ll be able to see any improvements and know when you're next eligible to apply for a mortgage. Look for errors on your report, including potentially fraudulent activity and report these straight away to the credit agency and any lenders. Also, see if your file is linked to anyone else either through a joint account or a shared address. If your account is linked to someone with bad credit, this could impact your score.

  • Make sure you are on the electoral roll
Having your name included on the electoral roll makes it easier to get credit as lenders see it as a sign of stability; that you have a permanent address which you are happy to share. It also reduces the chance that you are submitting a fraudulent application. EU nationals can be added to the electoral roll. Non-EU nationals can have proof of residency included in their credit report, providing reassurances to lenders, by sending the credit reference agencies a copy of a utility bill or their driving licence.

  • Make repayments on time
Even if you have late payments on your credit file, these become less important the older they are. Make sure, therefore, that you pay your bills on time going forward. Some bills are more important than others and will have a bigger impact on your credit score. These bills include your home phone, mobile or broadband bills and anything else that has a credit agreement attached to it.

  • Reduce your existing debt
Where you have existing debt look at how you can reduce this before applying for bad credit mortgages. The lower your debt levels, the more likely you are to be approved by lenders of bad credit mortgages, even if you can only reduce the amount of debt by a small amount. Look at whether you can manage to make more than the minimum payments on credit cards where you carry a balance, or if you can pay off loans early (provided that you don’t have to pay any early repayment fees).

  • Stop applying for mortgages or other loans
The more applications you make, the worse this looks to lenders as they see it as a sign you aren’t in control of your finances. If you apply for a credit building credit card, for example, and are turned down, don’t immediately apply for another card but wait a few months before making another application. The same process goes for mortgages - if you are turned down, don’t immediately reapply as you are likely to have this application rejected too. If you want to find out if you are likely to be approved, only complete soft searches as these won’t show up on your credit report.
How to improve your credit score

Affordability assessment for a bad credit mortgage

The first thing we’ll do when you meet with us is complete an affordability assessment, something every potential homeowner has to do following the introduction of Government legislation a few years ago. Before this, lenders generally approved a person’s mortgage application based upon their income. Now, they have to look at how much they can realistically afford to pay back, meaning getting a mortgage could be easier than you think if you can show that you can make your mortgage repayments. An affordability assessment takes into account:

  • Your credit report and credit score
  • Your employment status and level of income
  • How much money you have in your accounts, including whether there have been any unusual deposits or outgoings
  • Your level of debt
  • How much you have in savings and if you save regularly
  • If you carry an overdraft or live within your means
  • How you spend your money including rent, childcare, memberships and holidays
Whether you are applying for standard mortgages or bad credit mortgages, lenders will take all of these factors into account. A mortgage broker will do this in advance of any application so that any potential issues can be identified and addressed.

What are the benefits of working with a bad credit mortgage broker?

Hassle free services that focus on you 

At The Mortgage Hut, we work for you, not the lenders. We pride ourselves on offering professional, hassle free services that focus on you as the client. It's our job to give the right advice for your circumstances. 

Mortgage industry experts

Not only are our advisers qualified to give advice in the mortgage industry, but they have in-depth knowledge of the sector. This includes knowing the types of mortgages that are available, including the bad credit mortgage sector, and the type of lenders that would be willing to take a risk on a borrower with bad credit. At The Mortgage Hut, we deal with over 90 lenders, with over 12,000 products so you’ll get the most suitable mortgage. Even if your case is complex, such as you have a low credit score or adverse credit, we have lenders who will happily consider your application.

Helping to get your Mortgage Application Approved

By providing a personal review of your finances, carried out by a qualified mortgage adviser, we can help you to identify any issues in your credit report or financial situation that could impact your chances of being approved. We’ll discuss these with you and how they can be addressed before you apply. We can speak to lenders on your behalf, explaining the situation to them. Mortgage applications are generally assessed on a case by case basis, so it’s important that the lenders underwriter understands the reasons for any blips or marks on your credit profile. As one of the industry’s leading mortgage brokers, we have good relationships with over 90 lenders, which means we understand the lenders criteria and underwriting process, so we know how to present the case to the lender.

Saving you money & time

We see the bigger picture - in addition to helping you find the right mortgage deal, our specialist mortgage advisers can save you time and money by offering related financial advice. This may include helping you find buildings and content insurance for your new home or other types of insurance which could reduce the risk of your losing your home if you can’t make repayments, for example, critical illness or redundancy insurance.
What are the benefits of working with a bad credit mortgage broker?

Making repayments with a bad credit mortgage

When you are approved for a bad credit mortgage, you will be expected to make monthly repayments of an agreed amount. It’s important that you make these repayments, on time, every month. Make sure you stick to your budget so that the money earmarked for mortgage payments is always available. Don’t miss a payment or make a payment late as this could put your home at risk. And remember, by making payments on time, your credit score will start to improve, meaning you might be able to remortgage in the long-term, moving from a bad credit mortgage to one with better interest rates after a few years.

How to apply for a mortgage with bad credit

If you’re looking for a bad credit mortgage and want to find out more about how we can make your dreams of buying a house a reality, please contact us today on 02380 980304 to speak to a qualified adviser free of charge and with no obligation. We’ll talk you through the next steps and how we can help you to navigate the mortgage process quickly and easily, taking the stress out of finding the right lender and deal for you.

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