You might think that if you have bad credit, you’re never going to be able to get a mortgage. But guess what? Getting a mortgage with bad credit is totally possible. Here’s all you need to know.
What is bad credit?
If you have bad credit, this normally means you have a problem with your credit history. Your credit history is an overview of everything you’ve done up until now money-wise, kind of like a footprint of your financial history. It’s used to calculate your credit score, which is a number mortgage lenders use to see how good you’ve been with money in the past (lenders are the people who give out mortgages).
If you’ve had issues with money – for example, you’ve failed to pay your bills on time – this will show up in your credit history. And, normally, it will translate into a bad credit score.
It can be harder to borrow with a bad credit score as, if you’ve had money troubles before, it’s more likely that it could happen again. But that’s no reason to panic! Here’s why...
Can you get a mortgage with bad credit?
Yes! Contrary to what you may think, you can get a mortgage with bad credit.
There are over 100 mortgage lenders in the UK, and while some of them will refuse to lend to people with bad credit altogether, others will be much more flexible. Some mortgage lenders actually specialise in lending to people who have bad credit and even offer something called bad credit mortgages.
‘Huh? What’s a bad credit mortgage?’ we hear you ask.
A bad credit mortgage is a mortgage designed especially for people with bad credit. Hooray! There’s just one problem: they can be pretty expensive.
This is all to do with risk. If you’ve had trouble with money in the past, mortgage lenders will worry that it will happen again and you won’t be able to keep up with your monthly mortgage repayments. Basically, they’re charging you higher rates to make up for the extra risk.
Don’t get us wrong: if you’re struggling to get a mortgage because of your credit score, a bad credit mortgage could be a bit of a lifesaver. However, depending on the issue and how bad your credit score is, you might not actually need to get a bad credit mortgage. Instead, you may be able to get a standard mortgage from a high street bank, which is likely to be cheaper.
To find out what your options are, you’re best off speaking with a whole-of-market mortgage broker (also known as a mortgage advisor). They’ll be able to compare all the different mortgages available to you from all the different lenders to find you the best deal. Plus, they’ll sort your application out from start to finish.
Some brokers even specialise in helping people with bad credit scores. You can use our free find a mortgage advisor service to find the right broker for you.
What will bad credit mortgage lenders look at?
Okay, okay, so we know we said that it’s possible to get a mortgage with bad credit. And it is! But even bad credit mortgage lenders will want to do some checks before deciding whether or not they’re happy to give you a mortgage. Here are the main things they’ll look at.
- What the issue is. There are lots of different issues that might show up in your credit history, and some are more serious than others. For example, lots of lenders will be happy to give mortgages to people who’ve had late payments. However, there’ll be fewer lenders that are willing to give you a mortgage if you’ve had a more severe issue, like bankruptcy (bankruptcy is what it’s called when the law declares you as unable to pay your debts).
- When the issue was. This is probably the most important factor. While some lenders will be happy to accept credit issues that took place only yesterday, there’ll be lots more who’ll consider you for a mortgage if the issue took place a while back. For example, many lenders will ignore anything that happened more than 2 or 3 years ago.
- How frequent issues have been. Generally, lenders will be happier to lend to you if there’s only been one issue in your credit history, rather than lots. For instance, a load of missed payments over a number of years is worse than just one missed payment. This is mostly because if you’ve had issues frequently, lenders will think you’re more likely to fall into the same pattern again.
Of course, credit history is just one aspect of what lenders will look at when they’re umming and ahhing about whether or not to give you a mortgage. They’ll also need to weigh up all the other things that lenders normally check, such as your income, expenses, job and deposit. The stronger you perform in all these other checks, the more likely you are to be able to persuade a lender that they should give you that mortgage you’re after!
How to get a mortgage with bad credit
So, what can you do to make it more likely that a lender will accept you for a mortgage, despite your bad credit? Just follow these simple steps.
1. Check your credit reports
If you have a bad credit score, the first thing to do is find out why. This can be done by checking something called your credit report.
A credit report is a statement that lays out your credit history. It’s what’s used to calculate your credit score, and lenders will use the info on there to help them decide whether or not to give you a mortgage. So, safe to say you’ll want to know what’s on there!
There are 4 main companies that provide credit reports, known as credit reference agencies. They’re called Experian, Equifax, TransUnion (which used to be Callcredit) and Crediva. To get hold of your reports, you’ll just need to get in touch with each company or use CheckMyFile, which will get them all for you in one go. That way, you can see what the issues are and, hopefully, work out how to resolve them!
Nuts About Money tip: Make sure to get hold of all your credit reports, or use CheckMyFile to check them all in one go, as they’ll have slightly different info on them. This may also help you to spot any mistakes that you can ask the companies to resolve.
2. Give your credit score a facelift
Now you know what the issues are with your credit, you can spend some time trying to improve it!
That means getting up-to-date with any late payments and paying off any outstanding credit cards. And yes, sadly, it also means avoiding taking out any more loans for the time being. That car on finance that you’ve had your eye on might just have to wait, but it will be worth it for your dream home!
There’ll probably also be some quick wins on your credit report. For example, did you know that you can harm your credit score by changing addresses frequently, or even just old mobile phone contracts that are still showing up?!
By making sure your address is up-to-date on any old accounts and signing up to vote (so that you appear on a database called the electoral roll), you can quickly get your credit score looking as awesome as possible.
3. Find a mortgage broker
Remember those super helpful guys known as mortgage brokers or advisors that we mentioned earlier? Well, we’d always recommend getting one involved if you want a mortgage. But we’d really recommend it if you want to get a mortgage with bad credit.
A mortgage broker will actually take the time to sit down with you and learn all about your personal circumstances – including your credit situation – before giving you tailored info and advice. It’s best to choose a ‘whole-of-market’ broker, as they’ll also be able to compare all the different deals and lenders available to you to make sure you’re choosing the best (and cheapest!) one for you.
Mortgage brokers are experts in mortgages, so they’ll have a much clearer idea than you would about which lenders are most likely to give you a mortgage. This is important because, if you apply for a mortgage and get rejected, it could harm your credit score even more, making it even harder for you to get a mortgage.
By sorting out the whole application for you, your broker will give you the best possible chance of getting approved (and finding the best deal!). That way, you can avoid doing further damage to your credit score and, fingers crossed, get the keys to your very own home before you know it. Get in!
Not sure where to find a mortgage broker? You can use our free find a mortgage advisor service to find the right one for you.
4. Save a big deposit
Let’s imagine you don’t have any credit issues. In this case, most lenders in the UK will want you to pay a deposit of at least 5% of your property’s value. In other words, the maximum mortgage you can normally get will be for 95% of what you’re paying for your home.
Here’s an example for you. Say you’re buying a property for £200,000. In this case, most lenders will let you borrow a maximum of £190,000 (95% of 200,000 = 190,000), meaning you’d have to fork out a deposit of at least £10,000 (5% of 200,000 = 10,000).
If you only have a minor issue with your credit, you might still be able to get away with a 5% or 10% deposit. However, if you have more serious issues, you’ll often need to put forward a lot more.
For example, if you’ve been bankrupt or you’ve had a previous home repossessed (where your lender takes ownership of your property, usually because you can’t afford to keep up with the repayments), you could need a deposit of up to 25%. The same goes if you’ve had an Individual Voluntary Arrangement (IVA), which is an alternative to bankruptcy.
If you’re really struggling to convince a lender to give you a mortgage, you might even need to pay a deposit of 50%. In this case, you’d still need to pass certain checks, but you’d be much more likely to get approved as you’d be making yourself a lot less risky to mortgage lenders.
A mortgage broker will be able to give you a better idea of exactly how much deposit you’ll need for a mortgage, given your unique circumstances.
What credit issues do lenders accept?
There are many different issues that can lead to bad credit, and they’re all treated slightly differently by lenders. With that in mind, here are the main issues and how lenders often feel about them.
No credit history
Not all issues with your credit are to do with money troubles. No credit history is a great example of that.
If you have no credit history, it means there’s no info on your credit report. So, lenders won’t have anything to go off when they’re deciding whether or not to give you a mortgage.
You might end up with no credit history because you’ve only just moved to the UK. Or, maybe you’ve simply always lived with your parents.
A specialist mortgage broker will often be able to help you find a mortgage, but it’s best if you try and build up your credit history first. There are some really easy ways to get started. For example, you can open up a UK bank account if you don’t already have one, or you could register to vote so you show up on the electoral roll.
A low credit score
There are lots of different things that can lead to a low credit score. In fact, similarly to no credit history, many of these factors aren’t to do with money issues at all.
You might have a low credit score because you’ve never borrowed money before. This means you won’t have a track record for paying back money on time, which will make you more of a risk to lenders. Alternatively, you may simply have no address history.
By taking out a small form of credit, like a mobile phone contract, or getting a credit card and paying it off on time and in full each month, you can quickly start to get your credit score into better shape. And, hopefully, this will help you to get a decent mortgage deal.
Many lenders will be happy to give mortgages to people who’ve missed payments before, although they all tend to treat late payments slightly differently.
Normally, lenders will be happier to give you a mortgage if you’ve only missed a payment once, as opposed to having missed many payments over time. However, let’s imagine that you missed a payment 6 months ago and still haven’t caught up. Some lenders won’t take it too seriously as they’ll just count it as one late payment. But others will look at it more harshly, seeing it as 6 months’ worth of late payments.
Similarly, lenders will treat your application differently depending on what kind of payment you’ve missed. For example, lenders often won’t mind too much if you’ve missed a credit card payment, but they’ll be much more worried if you’ve missed a mortgage repayment. After all, if they’re going to be giving you a mortgage, they’ll want to be sure that paying it will be your top priority.
Defaults and CCJs
A default is what it’s called when a lender closes your account due to missed payments. This could be an account with your bank, your electricity supplier, your mobile phone company… the list goes on.
Meanwhile, a CCJ is a county court judgment and happens if someone takes you to court for not paying money you owe. Both these issues tend to be treated pretty seriously by mortgage lenders.
If the issue occurred a while back, you might be able to qualify for a standard mortgage with one of the big banks. However, there’ll still be specialist lenders who’ll be willing to give you a mortgage if the issue happened more recently. Many lenders will need you to pay back CCJs first though!
Repossessions and bankruptcies
These are the most severe issues that you can have in your credit history.
Repossession is when your lender takes ownership of your property because you’ve stopped paying what you owe. And bankruptcy is when you’re legally declared as unable to pay your debts.
It can be harder to get a mortgage with these issues in your credit history, but it’s still possible – especially if they occurred a while back. A specialist mortgage broker will be able to lay out your options for you.
A payday loan is a special kind of loan that’s designed to tide you over until payday.
If you have a payday loan in your credit history, this will be a red flag for lenders. In fact, most UK lenders will point blank refuse to give you a mortgage if you’ve had a payday loan recently as they’ll see it as a sign that you weren’t able to manage your finances properly.
If you’ve had a payday loan, your best bet is to get in touch with a mortgage broker to see what your options are.
Best bad credit mortgage lenders
The best bad credit mortgage lender for you will depend on all sorts of things, including the severity of the issue that’s showing up in your credit history.
Only have a minor issue? You might be able to qualify for a competitive mortgage with a big bank. Halifax, the Royal Bank of Scotland and Santander are all examples of lenders that don’t have specially designed bad credit mortgages but will consider applicants with bad credit scores, bankruptcies and CCJs on a case-by-case basis.
Got multiple issues in your credit history? Or issues that occurred recently? In this case, you might need to look at lenders who offer specially designed mortgages for people with bad credit. Here are some examples.
- Cambridge Building Society: This lender regularly gives mortgages to people with bad credit scores and is also happy to lend to people who have CCJs for up to £5,000.
- Masthaven Bank: On top of lending to people with bad credit scores, Masthaven Bank is willing to give mortgages to people who’ve had CCJs for an unlimited sum of money as long as they’ve had no more than 3 in the last 3 years.
- Vida Homeloans: If your last CCJ was more than 6 months ago, Vida Homeloans will be happy to consider you for a mortgage. This lender will also lend to applicants with bankruptcies, as long as they were more than 6 years ago.
Ready to get a bad credit mortgage?
So, just because you’ve got bad credit, that doesn’t mean you have to despair. You still have every chance of being able to get a mortgage on that dream property you’ve had your eye on!
If you’re ready to get started, why not find a mortgage advisor sooner rather than later? They’ll be able to guide you through the whole process, from finding you the best deals to sorting out your whole application for you. That’s right, you just sit there feeling smug while they work their butt off for you. Easy!