Bad Credit Mortgages
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Bad Credit Mortgages
A Bad Credit Mortgage can also be known as “Adverse Credit”, “Poor Credit” or “Sub prime” mortgages. These are some of the most searched terms on the internet when it comes to mortgages, as we are seeing a lot more people now more likely to have a poor credit history.
Trying to get a mortgage with bad credit is not the easiest to do on your own. A lot of people would anticipate that high street lenders would not be able to help so instead focus on specialist lenders but don’t know where to start but as an expert mortgage adviser we are here to help every step of the way.
According to research completed by The Mortgage Lender (a specialist mortgage lender), 1 in 10 people have been deterred from applying for a mortgage due to having a poor credit score.
However don’t be put off, speak to a broker and make sure you know the options for your own individual situation.
Can I Get a Mortgage with Bad Credit?
If you have had poor credit in the past, is it possible to obtain a mortgage?
The simple answer is yes it is potentially possible to get a mortgage even if you have had adverse credit previously but there are more hoops to jump through especially if you still have a low credit score.
What Is Considered Adverse Credit?
The most common instances of adverse credit that can impact your ability to get a mortgage are below and you can click on each individual one to find a dedicated page to each one.
Most of these things would be visible on your credit report if they have happened in the last 6 years and would have a direct impact on your credit rating.
When it comes to these instances of adverse credit, different lenders each take their own approach to them within their criteria and in some cases it could be possible that some high street lenders would still be able to help.
Your Credit Report
If you are looking at getting a mortgage and have had some credit blips in the past. The single most important document for your mortgage adviser is your credit report also known as your credit file.
The best one to use in our opinion is Check My File. This is because all three credit reference agencies (Experian, Equifax and Transunion) are visible on the report along with details of any defaults, CCJs, Bankruptcies etc that we would need to determine which lender is right for you.
Knowing the exact dates & the value of adverse events are the difference of getting a speedy answer and having to wait an age and a lot of back and forth to determine if it it’s possible to get a mortgage.
When working with us we don’t rush into completing a credit check on the fly. We want to understand your situation about what has happened and why and try to find the right solution for you.
This is why we like to get your credit reports up front as we will see exactly what a lender can see and in our own experience having your credit reports are the difference between a quick answer and having a stressful few days waiting to hear back.
Once we do have your credit report very quickly we will know which lenders will be the right one for you and at that point we would recommend completing an Agreement in Principle and at this stage it does involve a credit check.
However where possible we look to lenders that complete what is known as a “Soft Search” and this means that it will not impact your credit score so if you do have a low credit score then you don’t need to worry about this affecting you more but getting this Agreement in Principle will give you confidence that a lender has seen your credit report using a credit reference agency such as Experian or Equifax, they know all of your adverse credit and if they say they’re willing to accept it, then you can get out there looking at properties.
Is It Possible To Improve My Credit Score?
Yes absolutely, You may have a bad credit rating now but that doesn’t have to be forever. There are specific products out there designed to help improve your credit score and some companies that specialise in things like Credit Builder products if you have had a poor credit history.
A lot of people can be scared off from taking new credit after experiencing credit problems but then you see that from that point onwards you always have a poor credit rating until the blips eventually drop off which may not happen for 6 years!
This is due to lenders not being able to assess your ability to repay credit other than the problems that you have had in the past so your score can never improve as you never evidence paying something back.
When it comes to taking credit it’s always about being responsible with it and if you can evidence after that your credit problems are now behind you and you can maintain your monthly payment then you will see your credit score begin to grow again and this can make the difference in getting a mortgage sometimes as even building your credit score a small amount is better than leaving them as low credit scores
*THIS IS NOT ADVICE OR ADVISING YOU TO GO AND APPLY FOR CREDIT. PLEASE CAREFULLY CONSIDER YOUR SITUATION BEFORE APPLYING FOR CREDIT AND ENSURE ANY CREDIT IS AFFORDABLE TO YOU
How Much Deposit Will I Need?
What percentage of mortgage can I get with bad credit? Is normally at the top of questions for people that feel they have a bad credit score. There are a number of factors that have to be considered to determine how much deposit you would need.
The first is what type of bad credit or adverse credit that you’ve had. Missed Payments on a Credit Card are viewed differently to missed payments on a mortgage.
If you’ve had County Court Judgements or Defaults in the past 6 years this could mean that you may need to put down a bigger deposit than someone who hasn’t experienced a bad credit history as some mortgage lenders would consider you a higher risk.
However those who may have had problems with their credit history before but have worked and improved their credit score. It is possible to potentially still get a mortgage with a smaller deposit.
Will I Pay A Higher Interest Rate?
What interest rate you pay will largely depend on the mortgage lenders that you fit the criteria for.
Depending on the severity of your bad credit it is still possible that a high street lender could consider you which would mean much more normal interest rates however if things are slightly more severe and your credit rating would mean we may need to look at more specialist lenders who understand adverse credit better it could mean paying higher interest rates which will also result in higher monthly payments.
Which has a strange irony to it in a way. It’s likely you’ve experienced poor credit before due to experiencing issues with monthly payments so because of that you now pay higher interest rates which in turn means you have higher mortgage payments then someone looking at standard mortgages so you would think that would make you a higher risk. The mortgage market works in mysterious ways!
Are There Specific Bad Credit Mortgage Lenders?
Due to how mortgage lenders are regulated in todays mortgage market there are not “Bad Credit Mortgage Lenders” that only target those with a poor credit rating or bad credit history.
However there are specialist lenders who deal with a variety of unusual situations so can cater to those that may have a low credit score or have blips on their credit report.
So this means that there aren’t specific bad credit mortgage deals, bad credit mortgage rates or adverse credit mortgages so you could find yourself paying the same interest rate as someone who have perfectly good credit ratings but due to the nature of their employment, the currency they are paid in or another reason they couldn’t access standard mortgages.
Is Using Specialist Lenders More Risky?
No, not at all. Specialist lenders are regulated exactly the same as any other lenders by the Financial Conduct Authority including High Street lenders.
Just due to you having adverse credit in the past doesn’t leave you in the Wild West when it comes to mortgages. You receive the same protections as anyone that would have a mortgage with Nationwide or Halifax for example.
As your mortgage advisor when we find the right mortgage lender for you we will talk you through who they are and likely we will have had first hand experience of dealing with them so know that you will be in safe hands.
Can I Get a Mortgage if I’ve had Late or Missed Payments?
As much as it would be ideal to not have any, Mortgage Lenders in todays world do understand that it’s very hard to have a perfect credit history and things such as late or missed payments can happen.
If you were to have late or missed payments within the last 6 months this is likely something that would stop you looking at a mortgage immediately.
However once those 6 months have passed it would then come down to individual lenders. They will be looking at when the payments happened, how much they were for and how many.
If it was a one off blip in your lifetime and things have been fine since and you’ve maintained your credit history otherwise then subject to credit scoring it’s something that even some high street lenders may be able to consider.
Can I Get a Mortgage with County Court Judgement(s)?
County Court Judgements, also known as CCJs are when after a period of time of your credit not being repaid the company will then take you to court for that debt.
The CCJ will be registered on your credit report where it will stay for 6 years until it falls off due to reporting timescales.
A CCJ is the first step and isn’t really much more than administration and getting it onto your credit report for other companies to see that you have not repaid your debt and therefore put them off lending to you. Some companies if they wish can then take it a step further to take it to the High Court to get an enforceable notice to recover the money which is when you then appear on Don’t Pay, We’ll Take It Away with the bailiffs knocking on your door and taking items to the value of the debt unless you pay it there and then. Hopefully it never gets to that stage for you.
CCJs can put some mortgage lenders off wanting to give you a mortgage as your credit report is effectively saying you don’t pay your debts which makes you more of a risk to a mortgage lender and a lot of high street lenders have within their criteria that if you do have a CCJ. Then it’s an automatic decline
However there are still other lenders that can consider a mortgage if you have a CCJ but they will want to understand what the cause of the bad credit was as well as potentially ask for a higher deposit.
Can I Get a Mortgage with a Default(s)?
A default is slightly different to a CCJ in that there is no court involved. After you’ve missed a certain amount of payments (normally 6 but some providers 3) the company will then put your account into “Default”
This means that you can no longer use that credit so if you go into default on a Credit Card then you will no longer be able to use the card however you will still owe the debt.
A default will sit on your credit file for 6 years until it falls off due to reporting restrictions but a Default is a flag to other credit providers that you haven’t paid your debts and this could put off people wanting to lend to you
Another element and potentially because there is no court involved we can see a lot of defaults for what some people could see as trivial. We personally have experienced cases where people have had defaults for Mobile Phone Bills (sometimes for under £100), Utility Bills and TV packages like sky or virgin going unpaid.
Even these types of defaults will actually stop some mortgage lenders wanting to give you a mortgage so where possible avoid getting into situations like this as it can be very possible to have to look at a specialist lender with a higher interest rate just due to you feeling that you’ve paid off your mobile phone bill and refusing to pay a final £30!
Can I Get a Mortgage If My Partner Has Bad Credit?
Is your partner’s bad credit or a financial association stopping you getting a mortgage?
This is always an interesting one. The first question provides a simple answer, if you are buying in joint names and your partner has bad credit then yes this could make it harder for you to get a mortgage even if you have a perfect credit file. This is due to lenders always assessing everyone individually against their criteria so everyone needs to pass or nobody does.
With financial associations if you have previously had a partner that has had bad credit or had a joint account with a parent or friend and they’ve had bad credit then when a lender does a credit check if that individual is still linked to you then it will be visible to them. This in itself should not stop you getting a mortgage but a lender will want comfort that you won’t be at risk of missing payments and could look for an explanation if possible.
It is normally advised that if you are no longer financially associated with the individual then all joint accounts should be closed and if the association is still appearing on your credit file you can notify the Credit Reference Agency that you are no longer associated and they can remove it for you.
I’ve Had a House Repossessed Before, Can I Get A Mortgage?
Repossessions are scary all round. For you as the individual losing your home but also mortgage lenders, it’s normally the worst case scenario where every other avenue has been explored to try and help you. So if this has happened then it can be a major concern for any potential new mortgage lenders.
However even if you have been repossessed before there are still some lenders that could consider a mortgage application from you, the lender would want to understand the circumstances behind your repossession and how you will stop it happening again, it may have been due to the credit crisis, loss of job, illness or anything but just getting the picture of how you got into the situation and how you will protect from that again could provide peace of mind to a mortgage lender.
Being completely honest, you have a very small chance of getting a mortgage with the lender that previously repossessed you if they are still around so probably stick clear of them!
Other things to be aware of is that your credit profile since the repossession will need to be clean with no further adverse credit and it’s likely to mitigate the risk to the lender they would ask for a larger deposit but this isn’t across the board, we have done some mortgages with a smaller deposit where the case was strong.
I’ve Been Bankrupt Before, Can I Get A Mortgage?
If you have been Bankrupt previously this does not automatically rule you out of getting a mortgage but it will certainly make it harder getting a mortgage then other types of adverse credit.
The majority of the marketplace that will accept previous bankruptcies will need the bankruptcy to have been satisfied for at least 6 years so that would be 7 years after you took the bankruptcy so timelines are a lot more significant then it could be for others.
There are a very small pool of lenders that could consider a previous bankruptcy satisfied three years ago but would require a very solid credit profile since then and in some cases a large deposit to really lower the risk for the lender and even with all of this. You’ll still probably pay a higher interest rate.
If I’m In/Had an IVA, Can I Get A Mortgage?
Within the world of mortgages Individual Voluntary Arrangements (IVA) are viewed very much the same as Bankruptcies which isn’t great news for a lot of people that were sold IVAs by the providers as being a much better option and viewed more favourably.
When you have an active IVA it’s unlikely to find a mortgage lender that would be willing to allow you to apply for a mortgage with them at all
Most lenders will have wanted the IVA, like with bankruptcies to have been satisfied for at least 6 years (7 years since registration) but again a small portion of lenders could potentially consider with 3 years satisfied with a good deposit and solid credit profile since the IVA happened.
If I’m In/Had a Debt Management Plan, Can I Get A Mortgage?
A Debt Management Plan (DMP) from a registered Debt Charity are viewed slightly differently from an IVA or a Bankruptcy so there could be more mortgage options available without having to wait 6 years after finishing the DMP which in a lot of cases could be in place for a number of years (I’ve seen some with a repayment date of over 100 years time!).
For the lenders that will accept a current DMP you will have to have maintained the payments satisfactory for at least 12 months prior to the mortgage application but hopefully no missed payment at all and you’ll also likely need to be able to provide a reference from the Debt Charity to evidence that
Even with all of that, it is still unlikely to be possible to get a mortgage with a DMP in place with a smaller deposit of 5% or 10%.
Pay Day Loans
Even a hint of a pay day loan will send a shiver down the spine of a mortgage lender. Any evidence of Pay Day loans in the last 12 months is normally an indicator to mortgage lenders that you are struggling to manage your money and is a big red flag.
So much so that most won’t consider a mortgage application if you have taken a pay day loan in the last 12 months.
If you have had a payday loan in the past when you submit your mortgage application the mortgage lenders will likely want an explanation of what happened and why you needed the loan and what you will be doing in the future to ensure that you don’t need one again in the future.
Is There a Difference Between a Mortgage Broker & Mortgage Advisor?
There really isn’t any difference, they are interchangeable terms within the industry but they complete the same role for you in looking at your mortgage options and providing you advice on those options.
Can Utility Bills Cause Adverse Credit?
Whilst Utility Bills aren’t your stereotypical loan agreements, they are listed on your credit report which means that if you have missed payments on these accounts they could still cause you a problem in getting a mortgage.
There are some mortgage lenders that may be more flexible with Utilities then say a missed loan payment but it’s best to provide your credit report to get the best advice for your situation
So Many Terms, So Little Time
As ever when looking into something complicated there are lots of terms and some may sound the same but you get caught thinking, “Are they the same? Are they different? Is Poor & Bad Different? Am I overthinking it? Yes I am, I’m going to go to bed now” and this is completely normal.
Here at The Mortgage Broker (Cambs) we try to make your life as simple as possible as we believe everyone deserves to get onto the property ladder so here is an attempt to provide some peace of mind.
Poor Credit history, bad credit, adverse credit, bad credit rating, poor credit rating, bad credit score, low credit score, adverse credit history are all ways of saying exactly the same thing
Credit Report, Credit file, Credit Record are the same and whilst they each may provide a different number as their credit scores. It’s not so much the credit score from the credit reference agency that is important, more the content of the report.
Experian, Equifax & Transunion are all credit reference agencies and you can obtain a copy of your credit file from any of them however we do recommend Check My File due to their credit file showing all three of the above agencies in one place making your life easier.
Adverse Credit Mortgages, bad credit mortgages or a bad credit mortgage are all discussing the same thing but it’s important to remember there is no such thing as a bad credit mortgage. There are just mortgage lenders who understand people with an adverse credit history and can help with their available products.