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Bad Credit Mortgage
If you have missed credit card payments, declared bankruptcy or had a County Court Judgment (CCJ) awarded against you, particularly in the last six years, you will have a bad credit rating.
Getting a mortgage with a bad credit rating can be difficult, but every application is looked at individually and there are lenders out there that will still be able to help, regardless of your circumstances.
We can arrange bad credit mortgages for people in the following circumstances: Low or no credit score, late or missed payments, CCJs and IVAs, defaults, repossessions, debt management schemes, bankruptcy and payday loans.
Frequently Asked Questions
Do bad credit mortgages exist?
Technically, no, but they work in the same way as standard mortgages do, except they are offered to those who would normally fail the lenders’ credit checks. These mortgages can also be known as adverse credit or sub-prime mortgages as they help those with bad credit history get onto the property ladder.
The interest rates charged tend to be higher due to the seemingly higher risk, but if you get a bad credit mortgage, paying it off on time will gradually repair your credit rating.
Can I get a mortgage with bad credit?
As mentioned above, the interest rates tend to be higher and you will need a larger deposit (typically at least 15%), but you can still get a mortgage with bad credit. By offering a larger deposit, you reduce the risk to the lender, and improve your chances of getting accepted.
I want to apply, what are the next steps?
Check your Credit Rating
The first thing to do is to check your credit rating with one of the main agencies.
Once you have done that, you will have a better indication on where you stand and if you can improve your rating before applying for a mortgage, which could improve your chances of being accepted.
Making sure you are on the electoral roll, ensuring your bills are paid on time and closing existing credit accounts you don’t use will improve your credit rating, and put you in good stead.
Work out your affordability
When the broker and lenders will assess your affordability, they will do so by multiplying your annual income by four or five times. For example, if you earned £30k per year, the maximum you could borrow would probably be £120k, or £150k on those lenders that offer 5x income multipliers.
The lenders’ parameters on what they view as income varies, but it is usually your basic salary (or net profit if you’re a sole trader/director’s salary plus dividends if you’re a limited company).
The broker will then research all the best mortgage deals for bad credit based on your loan amount and LTV, and work from the top down the list to the first lender that will be most likely to accept your application.
Raise additional deposit to get a better LTV
LTV is the amount of a property that is mortgaged, with the remaining percentage belonging to you as equity in the property. The higher your deposit, the lower LTV you will need, as you will be providing the lender with more money up front, reducing their risk.
Raising additional deposit means you will lower the loan-to-value of the mortgage you require, which lowers the risk to the lender, making them more likely to accept your application.
For example, if a lender is unwilling to lend to you at a 90% LTV, raising additional deposit to bring the LTV down to 85%, or even 80%, will increase your chances of the application getting approved.
If you have bad credit, a minimum of 15% deposit is usually required, but the higher your deposit, the more likely you are to be accepted for a mortgage, despite your bad credit history.
Is it possible to remortgage with bad credit?
The first thing to think about is whether it’s worth it. If your credit score has worsened since you took out your mortgage, you could find yourself remortgaging onto a higher interest rate than what you’re currently on. In this case, it’d be more beneficial to you to wait until your credit score has improved before applying.
You should also consider the costs involved with remortgaging, as many mortgages have exit and arrangement fees that can add up to thousands of pounds.
If, after weighing up all of your options, you decide that remortgaging would be beneficial to you, the process is exactly the same, though you may be able to use your equity as a boost to your deposit.
Let The Mortgage Hut help with your Mortgage Application
As most lenders prefer an applicant to have a good credit rating, there is a chance that your application will be rejected. If this happens, you must be aware that applying numerous times will further damage your credit score.
Using a mortgage broker, such as The Mortgage Hut can help when applying for a mortgage when you have bad credit. Our advisers can put together a strong case to different lenders to get your mortgage application approved, with a thought-out, personable case greatly appealing to lenders.
For advice on getting a mortgage with bad credit, speak to one of our expert advisers who will be able to help you with the next steps.