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How to get a mortgage with bad credit

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

How to get a mortgage with bad credit?

Millions of Brits across the UK have poor credit. It could be due to several reasons, some more severe than others such as missed credit card repayments, late utility bill payments, loan defaults, previous mortgage arrears, repossession, a bankruptcy filing – you name it, they can all cause adverse credit.

If you have a poor credit rating, mortgage lenders consider you high risk, and as a result, securing a mortgage, especially from a high street lender, becomes quite the uphill task, effectively snuffing out your dream of one day becoming a homeowner – only if you don’t know how to do it.

Many borrowers with adverse credit don’t know that specialist lenders cater almost exclusively to individuals with poor credit and a low credit score. This guide explores everything you need to know about how to get a mortgage with bad credit, the eligibility criteria you must meet, and the credit issues that could make it harder to secure a mortgage. Read on.

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How to tell if you have bad credit

Bad credit, poor credit, adverse credit – these are all sweeping terms that mean the same thing and could describe a wide range of credit scenarios. When someone has “bad credit”, it means they’ve not been keeping up with repayments on credit agreements. Falling behind on payments could mean you’re a few days late, several months late (arrears), or you’ve stopped making payments altogether (default).

Your credit report tells potential lenders the story of your credit past. It collates information about your finances over the last six years. If you’ve been delinquent in your repayments, a mortgage provider doing their due diligence will be able to see this in your credit report and view the individual credit issues you’re grappling with.

This can make it much harder to secure a mortgage since bad credit signals to lenders that you pose a high risk to them.

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Can you qualify for a mortgage with a poor credit history?

It depends on the lender and their risk appetite. Mainstream lenders won’t even consider your mortgage application if you have a poor credit history. However, specialist lenders will.

This group of mortgage providers identified a gap in the lending market and swooped in to fill it by offering credit products to prospective borrowers with bad credit.

It is worth noting that these lenders aren’t easy to come by, especially if you don’t know where to look. That’s where a bad credit mortgage broker comes in. They have insider knowledge of the nuances of the bad credit lending market to help you secure a mortgage through a lender that will likely approve your application.

This doesn’t mean you’ll automatically qualify for a mortgage with a poor credit history.

It simply means that a bad credit lender would be open to review your application and giving you a fair shot objectively.

A bad credit mortgage lender will assess your application on several factors, key among which are:

  • How severe are your credit issues?
  • How long ago did they occur?
  • Do you meet the lender’s eligibility and affordability requirements?

The answers to these questions will be critical to a lender when determining whether or not to approve you for a mortgage, even with a poor credit history. It is what bad credit mortgage brokers consider when identifying a lender that will give you the best possible terms on your mortgage.

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How to get a mortgage with bad credit

If you have bad credit, the last thing you want to do is cold-apply for one through different mortgage providers. This approach would be a bit like shooting yourself in the foot, and here’s why.

Every time you apply for a mortgage, lenders do a “hard” credit search as part of their due diligence process. It involves accessing your credit file to view your credit history. If they find that you have bad credit and consider the issues on your report severe, they’ll reject your application.

Every time a lender does a hard search and then proceeds to decline your mortgage application, that hard search stays on your report and is visible to other prospective lenders. It tells them that you’re having a hard time securing a mortgage or are trying to apply for multiple mortgages with several lenders. Either way, prospective providers are less likely to approve you for a mortgage.

With that in mind, preparation is key if you apply for a property loan. You want your initial application to be a slam dunk with the right lender. Working with a bad credit mortgage broker is your best bet for success.

Here’s how to get a mortgage with bad credit.

1. Get ahold of your credit reports

It’s one thing to know you have bad credit. You need to dive deeper and understand the specific issues that can prove problematic for your mortgage application.

Download your credit report from each of the main credit reference agencies – Experian, TransUnion, and Equifax – to see what credit issues they have on file. If there are accounts that you’ve satisfied that still appear open, notify the respective agencies and ensure the information is up-to-date.

2. Fix your credit

Once you know where you stand, you need to work on fixing as many open credit issues as possible. Remember, the idea is to make a great first impression with prospective lenders.

If you have pending credit card, loan, or utility repayments, bring them up to date as a show of good faith. Consider setting up a debt management plan (DMP) with your creditors and keeping up with the payments. You can then request the credit agencies to add a note to your file indicating that you have an active DMP with the respective creditors.

Potential lenders will view this as a move in the right direction and will be more open to granting you a mortgage deal.

3. Consult a bad credit mortgage broker

Bad credit mortgage brokers know what lenders like and dislike. Consulting an expert before you apply for a mortgage will help you identify and fix issues in your credit report that could hurt your chances of securing a mortgage.

For instance, if you have a bankruptcy in your credit history, they may advise you to wait for a specific time frame before submitting your application. They may recommend that you use that time to boost your credit rating and even help you with your credit issues.

Once this period elapses, they’ll help you secure a deal with a provider that doesn’t have a problem lending to individuals who have a bankruptcy in their past, which is a major deal-breaker for a high street lender.

A bad credit broker may also advise you to raise as much money as possible towards the deposit to increase your chances of securing a mortgage with highly competitive terms.

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Mortgage eligibility criteria for bad credit borrowers

Lenders look at three main things when assessing bad credit borrowers for a mortgage:

  1. Type of credit issue and its severity: County court judgments (CCJs) and bankruptcies are considered more severe than missed utility bill payments.
  2. How long ago the issue was registered: The older your credit issues are, the better it will be for your mortgage application.
  3. The reason for your poor credit history: It is easier to blame adverse credit issues on a major life event (such as an illness or losing the source of your livelihood due to the pandemic) than on general financial delinquency.

Keep in mind that if you’ve filed for bankruptcy, no lender – mainstream or otherwise – will even consider your mortgage application until you’ve been discharged. This usually takes 12 months.

Once this period elapses, most lenders will insist on a specific waiting period before you can apply. Depending on the lender, it can be anywhere from 1-6 years. You can use this time to build a good credit history and rebuild confidence among prospective lenders.

It is also worth noting that mortgage borrowers repossessed in the three years preceding their mortgage application may be subjected to higher-than-average interest rates. However, these should gradually decrease as the years go by, provided the borrower maintains good credit habits.

As far as deposit requirements go, most lenders require a 5-10% deposit on the value of the mortgage. If you have a poor credit history and credit problems, it would be in your best interest to lower your loan-to-value ratio as much as possible by putting down a deposit of 25% or higher. This move lowers the lender’s risk exposure, making it more likely for them to give you a competitive mortgage deal.

Get expert help from a bad credit mortgage broker

There you have it – how to get a mortgage with bad credit. If you have a poor credit history and want to secure a mortgage, your best bet would be to go through a bad credit mortgage broker.

Our broker-matching service will put you in touch with an experienced broker to help you get a mortgage with a lender that’s likely to approve your application and give you competitive rates.

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Can first-time home buyers with poor credit secure a mortgage?

As a first-time home buyer with adverse credit issues, you check off two significant risk boxes lenders would rather avoid. High street lenders won’t even look your way.

However, a specialist lender will. Your best bet would be to speak with a bad credit mortgage broker. They will analyse your needs and credit profile and help you get a mortgage with a provider that’s likely to approve your application and offer you a competitive rate.

Can I get a joint mortgage if my partner has a good credit rating?

Yes, you can, but only if you apply for a property loan through a lender specialising in joint applications where one of the parties has poor credit. These lenders are often hard to come by, but with the help of an expert bad credit broker, who understands the nuances of the mortgage market, you’ll be able to secure a competitive deal.

How far back into my credit history will a mortgage lender look when assessing my application?

Adverse credit issues stay on your file for a maximum of six years. This information will be available to prospective lenders doing their due diligence when assessing your application.

That said, a specialist mortgage lender will assess your mortgage application based on the severity of the credit problems in your report and how long ago they were registered. The older they are, the better.

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