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Bad credit mortgage rates

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

Bad credit mortgage rates can you expect to pay in the UK if you have poor credit

It’s a well-known fact that bad credit means higher interest rates, therefore if you have a poor credit history and approach a mainstream lender to approve you for a loan of any kind, you’ll be lucky if they don’t immediately turn you away.

If they approve your application, they’ll stick you with higher interest rates than the market average. The idea behind doing this is to mitigate the risk bad credit borrowers pose to them.

You don’t have to settle for that and there are plenty of niche mortgage lenders whose speciality is bad credit borrowers. You just need to know where to look.

They’ll assess your mortgage eligibility on factors other than your credit rating, allowing you to secure a property loan at competitive bad credit mortgage rates. This guide explores how to secure a low-cost mortgage with bad credit and what interest rates you can expect.

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What impact do various credit issues have on bad credit mortgage rates?

Some credit issues are worse than others, and from a lender’s perspective defaulting on an auto loan and subsequently getting repossessed is far worse than skipping a couple of phone payments. Likewise, when it comes to bad credit mortgages, declaring bankruptcy is far worse than being delinquent on a utility bill.

Some common issues that could result in a low credit score, from the least severe to the most problematic, include:

  1. Having no credit history
  2. Having late payments on file
  3. Having mortgage arrears from past borrowing
  4. Payment defaults
  5. County court judgments (CCJs)
  6. Being on a debt management plan
  7. Property repossessions, IVAs, and bankruptcy

Even if your credit report mentions one or more of the above issues, it still doesn’t preclude you from securing a mortgage with bad credit.

Specialist mortgage lenders that offer bad credit mortgages exist for this very reason. They identified a market gap and stepped in to fill it. While mainstream mortgage lenders like banks might be quick to reject your property loan application based on your poor credit history, specialist lenders like to dig a little deeper to identify the why. Their expertise lies in lending to people with bad credit. For this reason, they rank credit issues based on severity.

Borrowers with seemingly “minor” credit problems generally qualify for mortgages at highly competitive interest rates. Those whose issues would be considered more adverse can qualify for property loans only if they fulfil certain eligibility requirements.

For instance, a prospective borrower who has suffered a recent bankruptcy would have to be discharged and wait a prescribed amount of time before they can apply for a mortgage.

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How does one’s credit profile affect their mortgage interest rate?

If your credit profile is less than ideal for a mainstream lender because of credit problems, your best bet for a mortgage would be to go through a specialist mortgage lender.

They are well-versed in all-things bad credit, which is why their target market is borrowers with adverse credit histories. An expert bad credit mortgage broker can help you secure a property loan at competitive interest rates and flexible terms through these lenders.

With that in mind, borrowers with excellent credit ratings and squeaky-clean credit records always get their loan applications approved.


Contrary to popular belief, mortgage lenders don’t approve property loans based on a good credit score. It is not unusual for prospective borrowers with seemingly excellent credit ratings to get their mortgage applications denied. This can happen for any number of reasons, including:

  • Not having a sufficient (or any) credit history, meaning they’ve never taken out a loan before;
  • Having a high debt-to-income ratio, meaning their recurrent expenses leave very little room to be able to comfortably service mortgage instalments;
  • Income uncertainty due to starting at a new job, working irregular hours, or having an erratic work pattern;
  • Having several different residential addresses in the last few years, which tells potential lenders that they are not stable;
  • Not being a registered voter on the Electoral Roll.

Even with good credit, the abovementioned credit problems can stop you from securing a mortgage at competitive interest rates – no different from someone with a bad credit rating.

It is worth noting that getting your property loan application approved or denied also has a lot to do with the mortgage provider’s lending appetite. Each lender has its own set of eligibility requirements. You may apply to one provider and get denied because they consider you “high risk.” You may apply to a different lender and secure a mortgage immediately.

An experienced bad credit mortgage broker knows the lenders most likely to approve your application. They know which providers offer the best bad credit mortgage rates relative to your specific credit constraints.

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What bad credit mortgage rates can you expect with a poor credit history?

At the time of this publication, the average interest rate for mortgages in the UK stands at 6.11% and 6.02% for a two-year and five-year fixed rate, respectively. This is almost three times what it was a year ago. If you have bad credit, you can expect the interest rate to be higher than the market average. How much higher it is, depends on the lender and the nature of the credit issues you have.

Every mortgage provider has criteria to assess prospective borrowers to determine whether or not to approve their property loan applications. In most cases, bad credit mortgage rates for individuals with poor credit are based on three main factors:

  • How old are the credit issues?
  • Why did they occur?
  • How severe are they?

If the credit issues are old, lenders perceive you to be low-risk than if they happened recently.

As far as the why goes, if life took an unexpected turn (such as getting laid off during the pandemic), you would pose a lower risk to a lender compared to credit issues arising from general financial delinquency.

When it comes to severity, credit issues that would be deemed more serious will limit the pool of lenders willing to approve you for a mortgage.

Other criteria specific lenders might have that could disqualify you from securing a mortgage include the size of your deposit, employment status, income, income, or property type.

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What factors do lenders consider when determining bad credit mortgage rates?

Lenders look at not just your credit history when deciding what the interest rate on your mortgage will be. They also consider the following:

The prevailing Bank of England interest rate

When the Bank of England’s base interest rate goes up, so do mortgage rates. Unfortunately, this tends to impact prospective borrowers with bad credit more than those with a sterling credit history.

An increase in the base rate can also affect any other outstanding debt payments you might have. Unfortunately, the net effect of this is an increase in your debt-to-income ratio, which, in turn, ties up more of your capital. This leaves very little of your income available to service potential mortgage instalments, effectively precluding you from other mortgages.

The mortgage rate type

Mortgage rates generally come in two forms:

  • Variable rate mortgages: A variable rate mortgage means you would start paying lower-than-average interest rates early on. However, as the years go by, and depending on the existing economic climate, there’s the possibility of those rates going up in the future.
  • Fixed-rate mortgages: A fixed-rate mortgage starts higher in the early years but remains fixed for a specific timeframe, usually 2-5 years. Some providers offer slightly longer periods. Once the fixed-rate period ends, the rates usually go up slightly.

The size of your deposit

A mortgage lender’s primary concern is minimizing their risk exposure. A borrower who puts down a higher deposit amount poses less risk to a mortgage company compared to an individual with a lower down payment.

If you put down a higher mortgage deposit at the point of securing your mortgage, a lender is more likely to give you a lower interest rate than other applicants. In the long run, it would be better for you to save up a significant deposit amount to leverage lower bad credit mortgage rates.

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How to get the best bad credit mortgage rates

Below are a few steps to improve your chances of getting your property loan application approved and getting the most competitive bad credit mortgage rates in the market.

Fix your credit report

The first thing mortgage lenders look at when assessing your property loan application is your credit history. It’s always a good idea to get ahold of your credit report from the three main credit reference agencies – Experian, TransUnion, and Equifax. Each of them has information about previous loans you may have taken, bank overdrafts, credit card bills, and utility accounts.

Identify any missed or late payments, and then do everything you can to settle them. Pick out any debts you can settle in the months leading up to your application. Once you do, get in touch with the respective agencies and ask them to update the information in your report to reflect the settled account. Once they do their own independent verification, they will update this information in your credit report.

You should also keep an eye out for errors and add an explanation where possible. For instance, if you have a valid reason why you missed certain payments or defaulted on an outstanding account, request the respective agencies to make a note against the issue in question that prospective lenders will see.

Correct typos and out-of-date information, such as your current residential address, might negatively impact your mortgage application when the time comes.

Stay on top of your finances.

Any credit issues registered in the last 3-6 months are a major red flag for lenders, regardless of how minor it might be. If you’re planning to apply for a bad credit mortgage and get competitive interest rates, stay on top of your finances and repayment schedules on open accounts.

We also recommend cutting back on unnecessary spending to increase your debt-to-income ratio and demonstrate financial prudence.

Consult a bad credit mortgage advisor

Before applying for any property loan, consult a bad credit mortgage broker for mortgage advice. They have a wide mortgage lender network you can leverage to get the best possible mortgage deal given your adverse credit. They are best placed to know which mortgage companies will most likely approve your application.

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What mortgage interest rate can I get with bad credit?

At the time of writing this, the average interest rate for mortgages is 6.11% and 6.02% for a two-year and five-year fixed rate, respectively. If you have an adverse credit history, you can expect your mortgage interest rate to be higher than that. How much higher it will depend on the severity of your credit issues.

Will my credit score impact my mortgage rate?

Not necessarily. A specialist mortgage lender looks at more than just your credit history when assessing you for a property loan or other mortgage product. They’re interested in whether you’ve kept up with your debt obligations in recent years; how much you’ll put down as a deposit – the higher the amount, the better; your current income, income type, and employment status. They’ll then use this information to assess your financial stability. There’s a lot more that goes into it beyond your credit score.

Will the quote I get from mortgage brokers show up as a hard credit check on my file?

No, it won’t. Quotes are generated from “soft” credit checks only. The credit enquiry will only be visible to the person viewing their credit rating and will not appear on your credit file for a mortgage lender to see so why not contact us now to get started with your application for a mortgage with bad credit.

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