Mortgage advice for if you have bad credit

Getting a mortgage with bad credit is difficult, but it’s not impossible.

Our guide explains how to apply for a mortgage when you suffer from bad credit, and you should also talk to mortgage brokers who will be able to advise on your situation impartially.

Can I get a mortgage if I have bad credit?

Yes. It’s hard, but you can be accepted for a mortgage while having poor credit history. Your options will be limited, though.

Every mortgage lender performs credit checks on everyone who applies, and danger points on your history will stand out no matter who you apply with. The strength of these red flags depends on the amount(s) of money involved and when the incident(s) happened – the more historic, the better.

Numerous high-street banks will not give you a mortgage if you have poor credit history, but building societies can be more flexible you could also turn to specialist ‘bad-credit mortgage lenders’ who work on deals for people who have suffered from difficult life events like severe illness or divorce.

These mortgage lenders are more considerate with applications, but charge larger fees, such as interest rates and deposits, than others.

How to get a mortgage if you have bad credit

There are still a lot of ways you can give yourself the best possible chance of being accepted for a mortgage:

• Get your credit in order: showing a history of full, on time payments does wonders for your credit score and shows lenders they can trust you.
• Clear the air with your partner: if you’re buying together, your partner’s credit score is also taken into question, so you need to get everything out in the open before going ahead.
• Be patient: if you have a low credit score because of past issues, the more historical they are, the better your score will become. It might be hard, but waiting is the best policy.
• Be honest: any lenders will perform thorough checks and will find anything you try to hide, so you have to be honest with them. A customer who lies is one they can’t trust.

Types of bad credit: missed payments, IVAs, and CCJs

Like we said earlier, when analysing your application, lenders look at the details of your credit history as well as your credit score. They need to know when and why the issues arose, but not everything has the same effect on your score. For example, a missed or late utility bill will have less of a negative effect than a court judgement.

Every lender’s criteria will be slightly different, so it is advisable to consider a few before making an outright choice and it could come down to choosing the lender which is most appreciative of your circumstances. Here are the most frequent examples of bad credit and how to get help:

Missing a payment

Missing payments or failing to make them on time will be recorded as defaults on your credit history and impact your rating, but they aren’t all viewed the same. A missed utility bill payment is more understandable than a missed mortgage payment which will make any lender apprehensive to agree to a mortgage, no matter when it occurred.

County court judgements (CCJs)

CCJs can be ordered against you when you fail to repay owed money, even if it’s just for minor sums, and can be present on your credit history for up to seven years. Banks will then look any failed repayment figures when considering your mortgage application. Amounts of £400, for example, will not be viewed as starkly as those totalling over £1,000.

If a CCJ was served more than three years before your application and the amount is fully repaid, the majority of high-street lenders might be willing to give you a mortgage, but any CCJs that aren’t ‘fully satisfied’ will invariably lower your chances of getting a mortgage.

Debt management plans or IVAs can help

If you are in substantial debt, a great way to get back on the right track is to set up a debt management plan, where you come to an agreement with your creditor to repay a set amount of money each month.

There is also the option of choosing an individual voluntary agreement, or IVA, which lets you pay money back in smaller, affordable amounts over a longer period of time. These are then recorded on a public register and creditors can’t demand full repayment if you have set up an IVA.

Checking your credit score

Think twice about applying for a mortgage if you think there’s a chance that you could be rejected, because every unsuccessful attempt will be added to your credit history and puts future vendors off because it lowers your score.

You might be able to around this if you’re applying for a mortgage in principle because lenders might only conduct a ‘soft check’, which does not appear on your credit record. But, soft checks do not cover everything, so future mortgage applications could fail if damaging information is found.

Sometimes, these factors can unexpectedly apply to you, so it is definitely worth checking your credit score before applying for a mortgage. It could also be helpful check what your options are with more than one lender, because they all score differently.

 

For more information and to get advice on mortgages with bad credit, visit our mortgage services page.