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Bad credit mortgage deposit

Author: Myles Robinson - Expert Finance Advisor

Posted: May 15, 2022

Bad credit mortgage deposit amounts required in the UK

A mortgage with bad credit can make it seem impossible to own a home.

There are many specialist mortgage lenders who will lend to people with bad credit history.

Even if you have credit problems that are severe, lenders will still approve your application with the correct amount of deposit.

Bad credit can affect how much you need to deposit. We’ll discuss these key factors in this article.

No matter what credit history they have or how large their deposits are, we’ve helped many homeowners get on the property ladder.

We’ve made it easy by compiling all the information you need about the deposit requirements for a low credit mortgage in this guide.

What is the minimum deposit required to get a mortgage for bad credit?

Each case will have a different amount of deposit. Every home loan provider has its own criteria for calculating and assessing your application in order to determine how high the risk is and how much they are willing to lend.

They will evaluate your mortgage application by using a variety of interlinking factors including the following:

  • How much adverse credit do you have?
  • When your first bad credit registration was made
  • Whether your debt has been settled.
  • How your credit score compares to other lenders (but remember that not all lenders use credit scoring).
  • What the property is worth
  • No matter if the property type includes a house or flat, bungalow, new construction, or another,
  • How much do you earn?
  • Your employment type (e.g. full-time employed, self-employed, contractor, retired etc)
  • Your age at the time of application

You will need to declare to the lender in order to improve your chances of getting a mortgage that is more competitive.

  • Any court order for non-payment
  • Arrears on mortgage, rent or loan
  • No matter if you were denied a mortgage or credit
  • Repossession if you were a party to the mortgage

These factors may not apply to you. However, it does not mean you cannot get a mortgage. You will need the assistance of a mortgage expert.

What effect does deposit size have on your application?

The general rule for all mortgages, especially those with poor credit, is that the higher your deposit, the better the interest rate and the greater the amount you could borrow.

A higher deposit will show the lender that you are capable of managing money, despite having bad credit. It will also lower the loan-to-value (LTV), which is the amount of the property that the mortgage must cover.

Your bad credit score can make it more difficult for you to obtain a mortgage. A bankruptcy applicant poses a greater risk to the lender than someone who has missed two months of mobile payments. Therefore, they will need to deposit a higher amount.

It is possible to get a mortgage with a down payment of 5% depending on your financial situation. We will connect you to one of our experts. They will be able to determine how much money you can borrow and what interest rates you’ll pay based on your deposit.

 

How will my minimum deposit amount be affected by the type of bad credit that I have?

Yes. The more bad credit you have, the higher the deposit required. As a security measure, a deposit is required to cover any risk associated with your application. The less you borrow from a lender the less they will need to recover if you default on your payments.

Below is a chart that will give you an idea of deposit requirements depending on what type of adverse credit you might have.

For more information on how credit issues may affect you and the deposit amount required, please refer to the following.

Arrears

Lenders will check to see if arrears are recurring, likely to recur or are increasing in frequency. This shows that the lender is not responsible for your money.

  • Secured/mortgage
    A 95% LTV mortgage may be possible (i.e. With a 5% deposit, it may be possible to get a 95% LTV mortgage (i.e.
    While some lenders will require you to have paid all your bills in the past 12 months, others may allow for a maximum of two months.
    Each lender’s criteria will vary, but many will examine your past conduct and request a written explanation before lending to you. Lenders may be more flexible if you have a good track record but are in arrears following the loss of your job.
  • Unsecured
    Lenders will be more strict with adverse if there is no asset to fall back upon. If you are more than six months late on any individual debts, some lenders may reject your application. However, others might consider applicants with less than three months of outstanding debts.
    Lenders will also assess your credit score and evaluate your application with a Mortgage Underwriter in order to determine if they are able to lend to you. If so, how much. You could borrow up to 95% of your property’s actual value if you have the right circumstances.

CCJs

Your county court judgment ( CCJ) registration date can impact the amount of deposit you need to offset any lender risk.

  • Satisfied
    Although many lenders will accept applicants with a satisfied CCJ in the past, they may have a limit on how long you can keep it. A maximum of £500, and you must be satisfied for at least three years.
    Deposits are not required for a mortgage. However, you might need to deposit 5% depending on how much you owe and how long ago the CCJ was satisfied.
    Keep in mind that lenders may limit the amount of a loan based on the property’s value. Some lenders will only lend 95% on properties up to £250,000 while others may go higher.
    Contact us to find out more about CCJ mortgages.
  • Not satisfied
    Unsatisfied CCJs may result in lenders declining applicants. This is because they were not registered within a certain time period, such as the last six months. First-time buyers who have an unsatisfiedCCJ may be refused, unless the adverse is historical (for example, 3 years).
    To be eligible for a mortgage, you may need to deposit 15-20%.

Debt management plan

You may be required to deposit between 15%-30% depending on the type of property and your financial situation.

  • Satisfied:
    If your debt management plan has been in place for at least three years, you will be more considered a prime candidate. However, you still have options if your DMP was not in place recently.
    A deposit of 15%-30% may be required depending on your situation. In some cases, you may be eligible to borrow more.
  • Current/unsatisfied:
    Lenders won’t automatically deny your application if there is a DMP in place. Their decision to lend you money will not be based solely on your credit score and the risk that your application poses.
    To offset the risk that you pose to the lender, you may be required to make a minimum deposit of 30%.
    Your chances of getting a mortgage are lessened if you have bad credit.
    The expert mortgage brokers that we work with can help find you special deals from lenders who may accept a mortgage with debt management plans.

Defaults

Lenders will note, just like CCJs: when your default was recorded. If your default is satisfied, or unsatisfied. Also, how much it was. The default will remain on your credit file for six-year. The longer your default has been, the better the deal you might be able to get.

Lenders may refuse to accept applications if the total default value exceeds a certain amount in six years. This could be £500, £2,000, or £500. A written explanation of the circumstances may be required.

  • Satisfied
    You may be allowed to borrow up to 95% of the value of a residential property if you are buying it. However, the maximum loan amount granted by lenders (for example, £350,000) may limit your options. A larger deposit is required for a new build or buy-to-let mortgage.
  • Not satisfied
    Lenders will often accept applicants with unsatisfied, small defaults. This is done on a case by case basis. A deposit of 10% to 15% may be required depending on the severity and complexity of your application.
    You can read more about mortgages with defaults or make an inquiry to speak to an expert about how to obtain a mortgage with a default.

Discharged bankruptcy

Lenders won’t accept applicants who are discharged from bankruptcy within one to two years. They prefer three to four years. Your application will not be accepted if you are in a current bankruptcy.

A deposit of 30% to 40% will be required if you are discharged bankrupt. If you wanted to buy a house at PS145,000, for example, you would need to save PS43,500. This does not include any additional costs.

Talk to one of our experts for the best advice about how to get the best possible mortgage deal after a discharged bankruptcy. They are familiar with helping people like you get a mortgage.

IVA

Lenders will pay attention to the year the individual voluntary arrangement (IVA) was created and completed, if applicable.

You may be eligible to borrow a lender’s standard products if you have an IVA that was registered more than six years ago. Lenders prefer that applicants are discharged no later than three years ago. However, you might need to show evidence and provide a written explanation about the circumstances of your IVA.

A deposit of at least 25% of the property’s worth will be required. However, it may not necessarily need to be that much depending on your situation and when your IVA was filed.

Late payments

Late payments are not considered severe adverse credit. You can get a mortgage with a deposit between 5% and 10%. However, this will depend on your credit history and the type and value of the property you want to purchase.

Lenders may also be interested in how you manage your other accounts. As long as late payments don’t become a recurring problem, you shouldn’t have any problems.

Mortgage arrears

Lenders will want to know how many months your missed mortgage payments in a 24-month period. Your mortgage application will be accepted if you have missed only one month and can provide a written explanation of your situation.

Lenders will often accept two missed payments. The deposit amount you need will vary depending on your situation and the lender’s criteria.

Your application will be denied if there are more than two missed payments in the past two years.

Multiple credit problems

If you have credit problems, you will likely need to deposit 30% or 40% of the property’s worth.

Talk to an expert broker like the ones we work with for the best advice. They can review your situation and help you find the best mortgage for you.

Repossession

Your ability to obtain a mortgage if you have had a repossession in the past will depend on how long it has been since.

You won’t be able to get a mortgage if your property was repossessed more than a year ago. Your chances of getting a mortgage are greater the longer you have between your repossession and the new application.

Some lenders will accept applicants who have repossessed the property within three years. Others require six to seven years. A deposit is required to cover between 30% and 40% of the property’s actual value.

Unauthorized overdraft fees

Unauthorized overdraft charges will be treated the same way as missed payments on credit cards or store cards by many lenders. They are also open to considering applicants. Your credit score, your overall quality and your circumstances will all play a role in their decision to lend.

You can borrow up to 95% from a mortgage provider, but the greater the down payment, the better.

 

What other factors could impact my application?

Other than your poor credit score, there are other factors that could impact the amount a mortgage lender is willing to lend you. For more information, see below.

Checks on affordability

Lenders will conduct affordability checks to determine if you are able to pay the mortgage repayments. Lenders will calculate your Debt-to-Income Ratio (DTI). This is the ratio of your monthly debts and obligations to your gross monthly income (the money you make before taxes and expenses).

Lenders want to see a ratio of debt to income that is less than 36%. To calculate this, they will consider:

  • Repayments for student loans
  • Credit card debts
  • Lending
  • Rent
  • Car payments
  • Support for children
  • Other monthly obligations

Divide your monthly bills by the gross monthly income to calculate your DTI. If your monthly debt is £600, and you take home £1,700 each month, divide 600 by 1,700 to calculate 0.35 or 35%.

This is why it is important to gather all evidence necessary before applying for a mortgage.

Types of employment

Because of the added job security and especially if you are a PAYE or full-time employee, lenders prefer applicants with bad credit. A mortgage could be obtained by self-employed people, contractors or retirees. However, they will need to show proof of income.

Lenders prefer self-employed people to have at least three years’ worth of accounts and a larger amount of deposit. However, it is possible to obtain a mortgage with less than two years of accounts, a smaller deposit and depending on your credit history and other circumstances.

Age

While most lenders will place a maximum age for mortgage applications and an end date, others may not.

Keep in mind that the longer your mortgage term, the lower your monthly payments will be. A larger deposit could help lower your interest rate if you have poor credit.

To get a UK residential mortgage, you must be at least 18 years old. To buy a property to rent, however, you need to be 21 or older.

Property value

The value of your property will vary depending on its location, size, type, and condition. Deposits are a small percentage of the property’s total value so the amount that you need to save could be very different.

To ensure you are paying the correct price, you need to have a survey done on the property. To determine the price of the property you are interested in, a surveyor will look at similar properties in the area and highlight any issues.

Type of property

The type of property that you buy could have a different loan-to-value ratio. A lender might set a maximum LTV for a house at 95%, while a flat or new-build property would have a limit of 85%. This figure may be higher for non-standard constructions.

 

What is the minimum deposit required to get a mortgage?

You can, even if you have bad credit. A mortgage lender will consider your financial situation, your credit history, and the amount of your deposit. You may be able to get a lower loan-to-value (LTV) if your deposit is smaller. However, your interest rates might be higher.

There are steps you can take before applying for any job.

These include:

  • Strong income
  • Stable employment
  • Your credit score should be improved
  • Minimise debts
  • Get your credit reports
  • Correct any credit reporting errors

Although lenders will prefer applicants with bad credit to have a higher deposit, there are still ways you can get a home loan that is competitive with an expert broker like the one we work with. You may be eligible for a mortgage with as little as a 5% deposit, depending on your credit score. Send us an inquiry and we’ll get back to you as soon as possible.

What if I make a large deposit to get a better deal?

Potentially, yes. Your chances of getting a mortgage at a lower rate may increase if you have a deposit of between 20% and 50%. Although your interest rates may still be higher than someone with good credit, this could help you to reduce your monthly payments.

You can deposit from your personal savings, a gift deposit and ISA or you could release any equity in assets.

Talk to one of our experts for the best home loan rates. They can search the market for the best mortgage to suit your needs.

Is it possible to get a mortgage without putting down a deposit?

Unfortunately, there are no 100% loan-to-value mortgages currently available in the UK. Although you cannot borrow the entire value of your home, there are still ways to get a home you love without spending a lot.

If you don’t have the funds to deposit, you might consider a guaranteed mortgage. This is when someone else is listed on your title deeds, but will not be co-owner of the property. If you fail to pay the repayments, they will be responsible. This adds an additional layer of security for the lender to counter any risk that your bad credit or no deposit poses.

Do you know of any programs I could benefit from?

You can boost your deposit and get more favourable rates by using a variety of schemes. For more information, see below.

Help with buying

The government-backed – Help To Buy: Equity Loan scheme lets first-time buyers borrow up to 20% of the property’s new-build value as a deposit. A 5% cash deposit is required, which means that 75% of the property’s worth can be borrowed. This scheme will end in March 2023 unless it is extended by the government.

In 2019, the Help to Buy: ISA program was closed to new applicants

Lifetime ISA

You can save up to £4,000 each year with a Lifetime ISA. The government will also increase your savings by 25% every month. This allows your ISA funds to grow and compound. You would receive a £3,000 ‘free’ government gift if you saved £4,000 over five years. This does not include the interest that you might have to pay.

Part ownership

The shared ownership scheme was created to assist first-time buyers or those who don’t currently own a home to get on the property ladder. It allows you to own a portion of your property and pay rent to the housing association that owns the remainder.

A 5% deposit is required to enter a shared ownership plan. Your share can be as low as 25%. It may become possible to purchase a larger share of the housing association over time and eventually buy the entire property.

Right to Buy

You may be eligible to buy a property in a housing association or council with a substantial discount through the Right-to-Buy scheme. Lenders can factor this discount in as a deposit, which could lower your loan-to-value ratio.

Family springboard

A Springboard Mortgage may be the right option for you if your family can help you climb up the property ladder. Your family saves money to purchase your home. Then they receive interest.

The lender will then take control of the funds by putting the money into a savings account. This sum is used as a security measure in the event that the borrower defaults on their payments.

Should I apply with my partner if she has poor credit?

You and your partner can decide whether you want to apply for a mortgage together. You could pay more interest if one of you has poor credit than the other.

Not only will lenders not average your credit scores to help you apply, but they will also not give more weight to applicants with lower credit scores. They will instead pay more attention to those with poor credit.

It’s not just about your credit score. Lenders will also consider your combined income when deciding how much to lend you. If your income is higher than your partner’s and you are able to afford the repayments, the upsides could be outweighed by the potential negatives.

An expert broker can provide more information on a joint loan. A broker can help you and your partner determine what type of mortgage you might be eligible for if you apply together, rather than as one applicant.

What effect does my location have on how much deposit I require?

Yes. There are many different initiatives in England, Scotland and Wales that can help people climb the ladder.

Some schemes allow for a higher deposit amount. However, some of these schemes only apply to new-build properties. This could pose a problem if there are fewer properties or a smaller number of residents.

A buyer may have fewer options when it comes to interest rates. They might also need to get a mortgage with a lender that requires a deposit.

Working with a mortgage broker will allow you to be open about your situation and provide information.

How much deposit is required to purchase a second home?

Lenders will typically ask for a down payment of 25% of the second home’s value. However, they may ask for more depending upon your credit score and other factors.

If you have bad credit and are looking to get a second charge loan for a property that you already own a mortgage on, the same rules apply. It can be difficult to find these lenders. This is why a specialist broker may be an advantage as they have access to the entire financial market.

What is the minimum amount I can afford for a buy to let?

A buy-to-let mortgage (BTL), is available for those with bad credit. Lenders will ask for 20%, 30%, or more depending on your financial situation. You may also have higher interest rates, so it is worth putting down more money.

There are specialist lenders that may ask for lower deposits, such as 15% to 20%, depending on your situation. The type of credit, as well as the date of missed payments or defaults, can have an impact on approval rates.

You should also consider that lenders may also assess your income. Many will require you to earn a minimum of £25,000 in order to meet their eligibility and affordability criteria.

A specialist lender might be able to offer you a better rate if you have bad credit and want to buy to let a mortgage. High street lenders and banks can have more rigid and flexible rules. Talk to one of our expert brokers to find these lenders.

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