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. Nothing is guaranteed in the world of mortgages, and no two lenders are the same. Its always worth seeking advice from a mortgage adviser who can help you through the process.
Mortgages with poor credit history
While it is possible to get a mortgage with bad credit history can 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 higher LTV mortgages (e.g. 95% LTV where you only need a 5% deposit) are considered ‘riskier’ loans, and people with bad credit history are considered 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?
‘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. They don’t tend to be offered by high-street banks, but by specialist lenders.
How to 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:
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)
- You may end up paying more over time as a result
- Interest rates could be higher
- 75% Loan to value (LTV) mortgages (or lower)
However, it’s recommended to compare different mortgages and see what’s on offer for you. We can connect you with an experienced mortgage adviser. Get a no-obligation mortgage quote below.
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 can take time, but it might just 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.
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 may not uncover everything in your history, so your mortgage application could be rejected later down the line.
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. That will only make you look worse and even less likely to get approved.
Instead, be prepared with an explanation as to why you were in financial trouble. 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 in 24 hours.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Last Updated: April 7th, 2022