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Guide to Getting a Mortgage with Bad Credit

Getting a mortgage can be a long and sometimes difficult process for any applicant. But if you have a poor credit rating or have faced financial problems in the past, this process can become even more difficult.

This post will explain what bad credit mortgages, how you can qualify and how they can help people with poor credit scores, buy a property.

What is a Bad Credit Mortgage?

A Bad Credit mortgage can be of any mortgage type. For example,  you could get a fixed, tracker, SVR or even discounted mortgage. However, they are products that are specially designed by lenders, to offer to people who have a low credit score. These can also be known as a subprime mortgages or adverse credit mortgages.

A poor credit mortgage will also typically be charged a higher rate of interest. Sub prime mortgages were more popular before the financial crash of 2007. Lender’s regulations were restricted in the years following the crash, however many are re-joining this market and introducing new products which work in line with the new lending rules.

Take a look at our Mortgage Types Guide for more information.

Am I Eligible For A Bad Credit Mortgage?

You may be seeking a bad credit mortgage or be unsure of your mortgage eligibility. Seeking advice will help you gain a clearer idea of your circumstances.  Adverse Credit mortgages may be offered to those who;

●     Have little/no credit history

●     Have made late payments on debts within the last six years

●     Defaulted on a previous mortgage

●     Have County Court Judgements (these remain on your record for six years)

●     Are in Bankruptcy (this remains on your credit history for six years)

●     Missed mortgage payments

●     Are on Debt Repayment Plans or who have made Individual Voluntary Arrangements (IVA’s)

What is a Bad Credit Score?

Credit scores are determined by your financial records and past-money management behaviours as well as your income, age and other factors. The aim is to predict your future management of this loan namely, can you afford to make the monthly repayments or repay the sum in full at the end of the term? There are many reasons why you may have a bad credit score.

Take a look at our Guide to Improving your Credit Rating to find out more.

How to get a bad credit mortgage

The first step in getting a mortgage with a bad credit is to be aware of your financial situation. You can check your own credit score online, and/or contact an independent financial advisor. An advisor can offer you specific advice and what your next steps should be.

Step One - Know Your Credit Score

Credit scores are not universal, each lender has different criteria for eligibility, which means rejection from one bank may not mean rejection from another. Comparing your credit scores across a few different credit history sites may help you draw a comprehensive analysis of your financial circumstances. 

Checking your credit score does not affect your credit rating, however applying for several mortgages can negatively affect your credit rating. Therefore, this first step is the most important step in applying for a subprime mortgage.

Please Note: Applying for a mortgage with some lenders can create what is termed a ‘hard footprint’ this means that the record that you applied and were rejected is saved and will count against your eligibility score when you apply for mortgages with other lenders.

Step Two - Seek Financial Advice

Bad Credit Mortgages carry more risk than conventional mortgage products. This is a specialist mortgage, which means that you are unlikely to find a good deal in the usual places. Many high street banks and lenders will have no mortgages of this type on offer. Applying with your existing bank and being turned down can have a negative impact on your credit file.

Our guide to the benefits of mortgage advice explains in more detail the services mortgage brokers provide and how they can make applications on your behalf based on their year’s of professional experience.

Some mortgages may charge fees for their advice, or some may be tied to a lender. Whichever type you opt for, the advisor will outline the prices before carrying out the application process on your behalf. Get in touch with an advisor today.

Step Three - Increase Your Deposit

In some cases, raising a higher deposit can gain you approval from a lender. See our Help to Buy Guide for details of government schemes that can help you raise a deposit for a house.

Step Four - Repair Your Credit Rating

In some cases of adverse credit, raising a higher deposit may not be enough. You could consider altering your spending habits, putting your mortgage applications on hold for a while, or taking out a adverse credit card and paying it off every month. Paying your bills via direct debit and adding your name to the electoral role can also help.

See more in our Guide to Improving your Credit Rating

Step Five -Make your Mortgage Application

Once you have sought advice and done all you can to improve your credit score, find some mortgage quotes and make your application from there.

We have a Guide to Applying for your First Mortgage here.

Let’s Look at an Example;

Alison has a bad credit history. Two years ago she lost her job, she missed some credit card payments and had to face a costly move to a different city to find work.

An independent mortgage advisor finds adverse credit lenders who examine applicants on a case-by-case basis. She was looking for a £200,000 property and had a deposit of £30,000 (15%). The advisor found a mortgage which suited Alison’s circumstances, the interest rate was 8.65% but the minimum deposit was 25%. Alison was found to be a good candidate for this mortgage because she had made a good recovery from her financial difficulties and had demonstrated financial stability in the years since. Alison, decided to save for a larger deposit and apply for the same or similar product when she here deposit of 25%.

What are the costs of an Adverse Credit Mortgages?

Lenders see applications with poor credit scores as being riskier, therefore they will charge a higher rate of interest to borrowers. They may also require a large minimum deposit amount.

However, with new mortgages entering the market all the time, it is possible to get an adverse credit mortgage.

Get in touch with an independent mortgage broker who can provide you with a free quote.