For people looking to buy a new home, this question is primary. Without a mortgage, buying a house is all-but impossible. If you have an adverse credit history though, you are used to being rejected for credit applications, so understandably you are shy about this – the largest credit application most of us ever go for.
As a couple, you talk about buying a house, but it always boils down to this question: can we get a mortgage?
At The Mortgage Hut, we’re here to say ‘yes’.
Obtaining a Joint Mortgage When Both Applicants Have Bad Credit History
Can we get a mortgage?
Obtaining bad credit mortgages
If you have perfect credit, a comfortable level of savings and a large income, you will be able to walk into a high-street bank and get through a mortgage application with little effort.
At The Mortgage Hut we believe we can find you a superior deal, but there’s no denying that the high-street route is available.
For those with a poor credit score, however, high-street lenders can be inflexible and off-putting.
We always enjoy the moment where I explain to worried prospective customers that we can find a mortgage for them despite a low credit rating – something that is possible through understanding what it is lenders are really looking for.
At The Mortgage Hut we believe we can find you a superior deal, but there’s no denying that the high-street route is available.
For those with a poor credit score, however, high-street lenders can be inflexible and off-putting.
We always enjoy the moment where I explain to worried prospective customers that we can find a mortgage for them despite a low credit rating – something that is possible through understanding what it is lenders are really looking for.
The four factors – how to get a mortgage despite bad credit
#1 - Loan to Value (LTV) or the size of your deposit
When you take out a mortgage it is a secured loan, which means if you fail to make payments, the lending company can issue an order to repossess the house. They don’t really care about the house, merely its value and whether they can sell it to get the money they lent back.
So, the more value there is in your house compared to the size of the loan, the more security they have regarding the mortgage. This is called ‘loan to value’ or LTV and is calculated based on the size of the deposit you have saved.
If your LTV is 90%, this means you are coming up with 10% of the price of your house yourself as a deposit and asking the lender to provide a mortgage for the other 90%. A LTV of 75% would mean a 25% deposit, and a LTV of 70% a whopping 30% deposit.
The first thing that people with bad credit can expect is a request for a higher deposit amount, lowering the lenders risk enough to make the mortgage appealing for them. If you default in payments, they are guaranteed to still make their money back on the sale of your house.
Understandably, it is tough for people with poor credit to save up a larger deposit, but it does provide one of the first avenues for obtaining that elusive mortgage.
So, the more value there is in your house compared to the size of the loan, the more security they have regarding the mortgage. This is called ‘loan to value’ or LTV and is calculated based on the size of the deposit you have saved.
If your LTV is 90%, this means you are coming up with 10% of the price of your house yourself as a deposit and asking the lender to provide a mortgage for the other 90%. A LTV of 75% would mean a 25% deposit, and a LTV of 70% a whopping 30% deposit.
The first thing that people with bad credit can expect is a request for a higher deposit amount, lowering the lenders risk enough to make the mortgage appealing for them. If you default in payments, they are guaranteed to still make their money back on the sale of your house.
Understandably, it is tough for people with poor credit to save up a larger deposit, but it does provide one of the first avenues for obtaining that elusive mortgage.
#2 - Your credit rating
Mortgages where a couple live in the same building are almost always joint applications – meaning both partner’s credit score is considered. A poor score on one side will drag down the good score on the other and a low credit rating on both partner’s record is going to make it even harder.
But not impossible – remember, your credit rating is only one of four factors. Credit rating is a record of your payment history. It tells the tale of how sensible you have been with money up to this point, and how reliable you have been making payments and keeping up to date with bills, debts and general outgoings. Generally, your credit rating is only relevant for the previous three years or so – while some companies might like to dig back as far as six to check for anything serious, it is the most recent activity that gives them a good idea of your suitability.
This does mean that with a little patience, it is possible to repair your credit rating. Three years of sitting tight and paying off all your bills on time will do wonders to your score and put you in a much better position. Spend that time saving for a deposit, and you’re hitting two of those targets.
Some lenders will be willing to talk to you about your credit report. If you have CCJs, bankruptcies, individual voluntary agreements or other significant records on the report, you are often given a chance to explain these away and for the most part you will be listened to. Remember, it’s about their assessing your risk as a potential borrower, and an explanation can help a lot.
Thankfully, it’s not always as simple as ‘computer says “no”’!
But not impossible – remember, your credit rating is only one of four factors. Credit rating is a record of your payment history. It tells the tale of how sensible you have been with money up to this point, and how reliable you have been making payments and keeping up to date with bills, debts and general outgoings. Generally, your credit rating is only relevant for the previous three years or so – while some companies might like to dig back as far as six to check for anything serious, it is the most recent activity that gives them a good idea of your suitability.
This does mean that with a little patience, it is possible to repair your credit rating. Three years of sitting tight and paying off all your bills on time will do wonders to your score and put you in a much better position. Spend that time saving for a deposit, and you’re hitting two of those targets.
Some lenders will be willing to talk to you about your credit report. If you have CCJs, bankruptcies, individual voluntary agreements or other significant records on the report, you are often given a chance to explain these away and for the most part you will be listened to. Remember, it’s about their assessing your risk as a potential borrower, and an explanation can help a lot.
Thankfully, it’s not always as simple as ‘computer says “no”’!
#3 - Affordability – the hidden part of the credit report
Most financial institutions, including many mortgage lenders, will talk about credit reports and credit scoring and fail to discuss affordability – yet they consider it as important in every way as the score itself.
Where your credit score is a number detailing your reliability as a debt-repayer, affordability looks at your income and outgoings and works out whether you can truly afford to make this level of monthly financial commitment.
Mortgage lenders know (despite your best protestations) that you need money for other things. Food, clothes, even going to the cinema, are all factored in when looking at your affordability rating and if you come up short, they’re going to move towards rejection.
Having a good income and low outgoings makes you a viable customer. It doesn’t matter how poorly your record of repayments have been, if there’s been a change in circumstances (such as a new job) that improves this affordability score, then it’s going to be strongly considered.
You can improve your affordability in a few months – lower your unnecessary outgoings and show a growth on your accounts, even if this means cutting down on entertainment or subscription services for a while. Are there gym memberships you’re not really using? Do you have subscriptions to Amazon Prime, Apple Music or Netflix? Or a tendency to spend a little too much on shoes each month? Cut back on all these to show a little more spare cash at the end of each month and you’re looking good.
Where your credit score is a number detailing your reliability as a debt-repayer, affordability looks at your income and outgoings and works out whether you can truly afford to make this level of monthly financial commitment.
Mortgage lenders know (despite your best protestations) that you need money for other things. Food, clothes, even going to the cinema, are all factored in when looking at your affordability rating and if you come up short, they’re going to move towards rejection.
Having a good income and low outgoings makes you a viable customer. It doesn’t matter how poorly your record of repayments have been, if there’s been a change in circumstances (such as a new job) that improves this affordability score, then it’s going to be strongly considered.
You can improve your affordability in a few months – lower your unnecessary outgoings and show a growth on your accounts, even if this means cutting down on entertainment or subscription services for a while. Are there gym memberships you’re not really using? Do you have subscriptions to Amazon Prime, Apple Music or Netflix? Or a tendency to spend a little too much on shoes each month? Cut back on all these to show a little more spare cash at the end of each month and you’re looking good.
#4 – Interest rates – making it that much more enticing
This one you have a little less control over, but if you are struggling with any of the other three factors, get ready for a higher interest rate on your mortgage. This is how mortgage lenders make their money and if you accept a higher rate, then you are making the deal a lot sweeter for them – probably enough to tip them over the line from ‘rejection’ to ‘acceptance’.
Accepting a higher interest rate is not as bad as it seems. It can mean higher monthly payments on your mortgage (which does unfortunately impact on your needed level of affordability), but those high rates don’t have to be accepted forever. A few years in when you have repaired your credit rating a little more and the odd promotion or salary raise has made your affordability score a little more impressive, you can talk to us about a re-mortgage, letting you replace the initial deal with something a lot more cost-effective.
Interestingly, mortgage lenders tend to assume that people with bad credit are less likely to get a sensible re-mortgage a few years down the line, because of the tendency for people with a poorer financial history to ignore their finances. Don’t be those people! Get a handle on your finances and you can save thousands.
Accepting a higher interest rate is not as bad as it seems. It can mean higher monthly payments on your mortgage (which does unfortunately impact on your needed level of affordability), but those high rates don’t have to be accepted forever. A few years in when you have repaired your credit rating a little more and the odd promotion or salary raise has made your affordability score a little more impressive, you can talk to us about a re-mortgage, letting you replace the initial deal with something a lot more cost-effective.
Interestingly, mortgage lenders tend to assume that people with bad credit are less likely to get a sensible re-mortgage a few years down the line, because of the tendency for people with a poorer financial history to ignore their finances. Don’t be those people! Get a handle on your finances and you can save thousands.
The fifth factor - being in the know
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