Having a poor credit report can put some people off buying a property. But can you get a mortgage with bad credit? In short, yes.
Even if your credit report is off-putting to some lenders, you might still get a mortgage from others. In the world of mortgages, nothing is guaranteed, and no two lenders are alike. Its always worth seeking advice from a mortgage adviser who can help you through the process.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Mortgages with poor credit history
While it is possible, you can get a mortgage with bad credit history but it might be more difficult. You may well find your options are limited:
- To a smaller pool of lenders to choose from
- You may need to save a much larger deposit (20% or more)
- This is because lenders consider higher LTV mortgages (e.g. 95% LTV where you only need a 5% deposit) as ‘riskier’ loans, and view people with bad credit history as risky candidates.
- Mortgage deals may be more expensive
- Interest rates might be higher
- Mortgage broker fees (if used) might be higher
- Higher fees for taking out a mortgage
- Longer repayment terms
What will a lender see?
When you apply for a mortgage, it’s the lender’s job to assess risk, considering you and the property itself. This applies whether you’re remortgaging, a first-time buyer or moving somewhere new.
‘Bad credit’ is often down to things like missed payments, too much debt, CCJs or bankruptcy. It’s always worth checking your credit score to see where you stand before lenders do. A mortgage adviser can help you with this too.
Lenders will look at everything from proof of employment to debt, and poor credit history will stand against you. Your credit record will display information on your payment history from the past 6 years, including information on all loans and credit cards.
Any late or missed payments will show on your credit record for six years and default and CCJs will remain until settled.
If there’s any incorrect information on your file, take this opportunity to have it corrected. Tip: credit reports do not automatically update so be sure to allow some time for any updates to feed through.
What is an adverse credit mortgage?
Some lenders offer mortgages specifically designed for those with bad credit, known as adverse credit or subprime mortgages. Specialist lenders, rather than high-street banks, usually offer these loans.
Your home may be repossessed if you do not keep up repayments on your mortgage.
How can you get a mortgage with bad credit
Truth be told, your options will be limited. But, that’s not to say it’s impossible. Here’s some advice on how can you get a mortgage with bad credit:
Compare mortgage deals
You may well find the only deals available to you are:
- Fixed-rate mortgages
- These have an interest rate that stays the same for a fixed period of time (e.g. 2-5 years). With long term fixed rate mortgages the fixed period tends to be 30 years or more.
- You may end up paying more over time as a result
- Interest rates could be higher
- 75% Loan to value (LTV) mortgages (or lower)
- This would mean you’d need a deposit of at least 25%
- To put this into context, the average UK house price is currently (October 2022) £316,073, so a 25% deposit = £79,018
- This might mean looking at cheaper places to buy
However, you should compare different mortgages to see what’s available for you. We can connect you with an experienced mortgage adviser. Get a no-obligation mortgage quote below.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Improve your credit score
Want to improve your chances of getting a mortgage? It can be a good idea to delay and try to improve your credit rating before going any further. This comparison might take time, but it could be worth it in the long run. Some tips include:
- Holding off applying for credit (e.g. any further cards/loans)
- Paying all bills on time
- This includes utility bills, rent, mobile phone etc.
- Tip: setting up direct debits can help
- Keeping name and address up to date
- Closing inactive accounts
- Considering your partner’s debt (their score will count on your mortgage application)
- Manage existing credit carefully
- Establish a strong record of regular payments
- Avoid going into your overdraft
Get a guarantor
Guarantor mortgages are an option for those with bad credit. Someone (usually a close relative) agrees to pay the mortgage on your behalf if you couldn’t for any reason. It can give you access to a wider range of mortgage deals.
Get prepared
Getting a mortgage agreement in principle is a good idea, as it makes you look a more prepared buyer. Lenders may conduct a ‘soft check’, which does not show up on your record.
However, be aware that a soft check might not uncover everything in your history, leading to a possible rejection of your mortgage application later on.
You should also get all the documents you’ll need together, such as payslips and bank statements.
Be upfront & honest
A lender will do a thorough investigation; don’t try and hide anything. This rejection could make you appear worse and decrease your chances of approval.
Instead, prepare an explanation for any financial trouble you have experienced. If you can present how you’ve got yourself out of it, that will give you some leverage. Keeping a paper trail is a good idea.
Know when to wait it out
If your mortgage is declined, try to avoid instantly making another application. At least wait a few months. Multiple applications rejected in a short space of time can make future lenders less likely to approve you.
Present yourself well
Ensure you’ve got a steady income and have been in a stable job for at least 6 months before applying. This can make your application more attractive.
If you’re self-employed, get a SA302 form to provide evidence of your earnings.
Should you buy a house with bad credit, or wait?
Buying a house is a huge financial commitment and one that needs careful consideration, time to weigh things up:
Pros of buying now
- If you’re ready to move and have found a property you like, the road to home ownership will be quicker
- Improving your credit rating can take time and delay your purchase
- There might well be a range of deals available that you’d otherwise miss out on
Cons of buying now
- Saving a higher deposit can be difficult and take time
- Higher interest rates are likely
- Better deals might be available to you if you wait things out
Remortgaging with bad credit
Remortgaging works in much the same way; lenders will consider whether you’re a worthy applicant and your credit file will be part of this.
Paying your mortgage on time can help boost your credit rating, which may mean you get a choice of better deals with lower interest rates. It’s worth trying to boost your credit score if you have time.
You might be able to get a better deal from a different lender over your current one, it’s worth looking around.
Getting expert guidance from a mortgage adviser can be invaluable here; we can connect you with our recommended brokers. They offer fee-free advice to most customers.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Last Updated: January 10th, 2024
