Bad Credit Mortgage
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What is bad credit?
Bad credit, also known as adverse credit, refers to things like missed payments, defaults, and County Court Judgments (CCJs), as well as bankruptcy and Individual Voluntary Arrangements (IVAs). It can also include debt management plans (DMPs).
Having a high level of debt relative to your income can also have a big impact on a mortgage application.
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What is a bad credit mortgage?
A bad credit mortgage is a mortgage, often with a specialist lender, aimed at people who can’t get a mortgage with a high street lender because of their credit history.
How does bad credit affect a mortgage?
Having bad credit can make getting a mortgage harder – and in some cases impossible.
Banks conduct credit checks to determine if you’re likely to repay them in full and on time. If you have a history of late or missed payments, banks are less inclined to lend to you.
As you’re deemed a higher risk than someone who doesn’t miss payments, you might have to put down a bigger deposit or pay a higher interest rate.
What deposit is needed for a bad credit mortgage?
It depends on what the bad credit is, exactly.
A recent default will have more impact than a missed payment on a mobile phone contract five years ago, for example.
Some specialist lenders may consider a 10% deposit, while others may require as much as 30% or even 40%.
What rates are available on bad credit mortgages?
If bad credit means you have to use a specialist lender, then you will likely pay more than someone eligible for a high street bank or building society mortgage.
We recommend speaking to a mortgage broker like us first, as we can determine whether or not you need a specialist lender. Some relatively mainstream lenders might accept small levels of adverse credit.
How do I find out if I’ve got bad credit?
Have a look at your credit report.
The UK has three main credit referencing agencies: Equifax, Experian, and TransUnion. They hold information about you, like your name and address, who you’ve got credit with, how much you’ve borrowed, and whether you’re paying your creditors back on time.
Lenders will check your details with one or more of these companies when you apply for a mortgage. We recommend you check your credit report before applying. Look at the whole report, not just the score. It should show information from the past six years.
You can sign up to each of the credit referencing agencies above. Alternatively, we like Check My File. It pulls data from all three agencies and displays it in one place. Check My File is free for the first 30 days, then £14.99 a month afterwards. You can cancel the subscription at any time. If you sign up using our affiliate link, we may receive a small amount of commission at no additional cost to you.
If you need help understanding your credit report, contact us.
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What does my credit score mean?
Your credit score is a basic indicator of how well you manage borrowed money.
If you make repayments in full and on time, your score should be higher than someone who doesn’t.
While the score is important, what’s more relevant when applying for a mortgage is the reason for that score being what it is. For example, is it low because you’ve missed payments or simply because you haven’t borrowed money from a creditor before?
The score also considers factors like being on the electoral roll and whether you’ve applied for a lot of credit recently.
How can I improve my credit score?
Improving your score takes time.
If you have bad credit, you should notice that as it gets older, your score increases. When it drops off completely you should see a difference.
If you’re confident in your ability to manage money, see if you can get a small credit card. Opening a new account might initially cause your score to dip, but consistent use of the card and paying it off in full every month should improve your score within around six to twelve months.
Only ever borrow what you need, and what you can afford to pay back.
Can I get a mortgage with bad credit?
It really depends on what the bad credit is and how recently it occurred.
Your credit report shows data from the last six years. The older the bad credit is, the less likely it is to have an impact. This is because you should have built up some good credit more recently, so it shows you’re in control of your finances.
The amount can be a factor too. Getting a small default for missing the last payment on a mobile phone contract shouldn’t matter as much as a CCJ for tens of thousands of pounds.
Getting a mortgage with missed payments
Again, it depends: how many payments did you miss, and what was it for?
Missed mortgage payments are viewed more seriously than any other missed payment. This is because not paying your mortgage could result in your home being repossessed; that’s something most people want to avoid!
Missing several payments in a row could ultimately result in a default. That’s when the creditor could close your account. They might also appoint a debt collection agency to chase you for the money you owe them.
Can I get a mortgage with a default?
Potentially, yes.
A default is usually the product of several missed payments, so it’s a bit more serious. Defaults will show on your credit report for six years from the date of registration, so they can have a lasting impact.
Again, getting a mortgage with a default usually depends on when the account went into default, what it was for, and how much it was for. Some lenders might require the default to be satisfied; that means you’ve paid the debt back.
Getting a mortgage with a CCJ
A CCJ is another step up on the severity scale. It’s a court order telling you to pay your debt. Like a default, it will stay on your credit file for six years from the date it was issued.
Also like a default, whether you can get a mortgage with a CCJ on your credit file depends on how long ago it was and how much it was for. The older and smaller it is, the better your chances.
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I’ve had payday loans, can I get a mortgage?
Getting approved for a mortgage with recent payday loans is tricky.
Having payday loans suggests you can’t manage your money very well. If you need to borrow to fund your lifestyle, banks won’t be very keen on lending to you.
If the payday loans are over three years old, you should stand a better chance.
Mortgages with debt management plans
A debt management plan is an agreement between you and the institutions you owe money to. They are usually used when you can only afford to pay a small amount each month. The creditors may accept a reduced total, as getting something back is better than nothing.
If you’re currently in a DMP, and you can prove you’ve made payments to your plan in full and on time for the last twelve months, with no new adverse credit since entering into the plan, then it’s entirely possible.
If you have only just entered into a DMP, you will need to wait until you have had it, and maintained it successfully, for a full year.
Please be aware that your DMP will be factored into affordability.
Can I get a mortgage with an IVA?
An IVA is an agreement with your creditors to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors. It usually lasts for five years.
An IVA stays on your credit file for six years from the date it is registered. Some lenders, however, will specify how long it needs to have been satisfied for before they can accept you.
If your IVA was satisfied over three years ago, lenders are more likely to consider you.
Being in an active IVA will significantly hamper your chances of getting a mortgage. It may still be possible, but a big deposit (circa 30%) is likely to be required. The lender may also need the IVA to be cleared in full on completion.
I’ve been bankrupt, can I get a mortgage?
Bankruptcy is a legal status for people who are unable to repay the money they owe. You can only be made bankrupt if you have debts over £5,000, and it’s generally seen as a last resort.
When you’re declared bankrupt, the value of your possessions is usually shared out among those you owe money to. This can include your house and car – everything except the essentials. Depending on your income, you could also be asked to make payments towards your debt for up to three years.
If your bankruptcy was discharged over three years ago, you’ve got a better chance of being accepted, although a bigger deposit is usually still required.
Being in an active bankruptcy will likely mean you cannot be accepted for a mortgage.
Could having a guarantor help me get a mortgage with bad credit?
Guarantor mortgages, and Joint Borrower Sole Proprietor mortgages, are geared more towards people who don’t have the income or deposit needed to get the mortgage they want, rather than specifically helping those with bad credit.
However, applying with someone who has a good credit score can help your application.
How can The Mortgage Store Chorley help with a bad credit mortgage?
From discussing your credit report to placing you with the right lender for you, we’re here to support people with bad credit.
Although we have to ask about the circumstances surrounding your bad credit, we don’t judge, and we’ll do all we can to support you.
Contact us for a free, no-obligation chat to find out how we can help.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
