Do you know what your credit score looks like? Is it bad? If so, then you will find it difficult to get a mortgage. Do not worry though, it is not impossible to do so. Yes, you can get your hands on a mortgage even with a terrible credit score. Your options are limited but they are there. So, shall we get into it? Let’s find out how to get a mortgage with bad credit in the UK.
What is the Meaning of Bad Credit?
What is the meaning of all this? Well, we don’t know the meaning of life, but we can explain the meaning of bad credit. It boils down to you having a poor credit rating. Which is because you missed payments in the past or were late. These payments include loan repayments, utility bills, or any other such scenario where you did not pay on time. Or also in full.
Now, let’s talk about what can cause damage to your credit record:
-
- If you owe someone money due to legal action.
-
- If you apply for credit multiple times.
Those are big no-noes.
Do you enjoy satire? You should, as the next point is just the right amount of ironic. Your credit score also gets a bad reputation if you don’t ever apply for credit. This is because you will not have a record as proof of any repayment.
Lenders will look over your credit history to decide if you can be trusted with a mortgage. They also assess to see how much mortgage they can give you.
There is no need to pull your hair out. Turns out that homeowners with bad credit and first-time buyers can still get a mortgage. Thus, it is important that you understand how to get a mortgage with bad credit.
What is the Process of Bad Credit Mortgages?
Moving on to how bad credit mortgages work. It’s like any other home loan. Not very special.
Here’s what you do:
-
- Choose between a variable or fixed rate.
-
- Decide the length of the deal.
-
- Keep making regular monthly repayments until a mortgage is clear.
-
- One day, you will own the property.
Hold on, there is a difference. You will probably end up paying a higher interest rate. It is a riskier loan, after all. Also, you need to place a bigger deposit.
Well, a survey says only one-third of 5000 residential mortgages were available to borrowers with bad credit histories. Not only this, but they had to place a deposit of 25% at least. This data is according to Which, a consumer group. Before we jump into the explanation of how to get a mortgage with bad credit, let’s consider if it is the best idea.
Is Applying for a Mortgage with Bad Credit a Good Idea?
Suppose you can get a mortgage even with bad credit. The question remains, does that make sense? Your answer lies within your financial circumstances and your immediacy to buy a home.
Time to pull up the pros and cons list:
Pros
A great advantage is jumping onto the property ladder sooner rather than later. Enjoy the perks of owning a property.
You can enhance your credit score by making regular monthly repayments. Furthermore, future borrowing, including the opportunity for re-mortgage, becomes easier.
Cons
Considering your debts in the past, are you in the position of handling a mortgage? Not to rain on your parade, but think about it. Add repairs and maintenance to the list and that is a lot of expense. Make sure you can afford it before you commit.
You might require a bigger deposit and a mortgage will cost you more.
No. |
Pros |
Cons |
|---|---|---|
|
1. |
Jump onto the property ladder sooner |
Consider your past debts and ability to handle a mortgage |
|
2. |
Enjoy the perks of property ownership |
Add expenses for repairs and maintenance |
|
3. |
Enhance your credit score with regular repayments |
Ensure affordability before committing |
|
4. |
Future borrowing, including re-mortgaging, becomes easier |
Require a larger deposit and increased mortgage costs |
How to Get a Mortgage with Bad Credit in the UK
This is a friendly reminder that different types of bad credit get different treatment. Regardless of whether you plan to re-mortgage or purchase a property. Therefore, you must have an idea of how the lender will view your credit situation.
Lenders will take one look at your mortgage application and will want to throw it in the trash if:
-
- You had a property repossessed.
-
- You failed to make payments on a loan. This includes a payday loan.
-
- You received a county court judgement (CCJ) in the last 12 months for a debt that is secured by property or another asset.
Nevertheless, with time, say a year or two, lenders might take another look at your application. The bad news is that you will most likely still require a large deposit. This can be 25 or higher. In case you are re-mortgaging, you will need a lot of equity. As a result, you become less of a lending risk. Your job is to convince the lender that you are a low risk.
Another reason lenders might give you a chance is if your bad credit is related to unsecured finance. If the debt you owe is not secured against any assets or property, you are still in the running. Lenders will gladly accept your application even if you have defaults, CCJS, or late payments. Under the condition that it is unsecured finance.
Suppose you are bankrupt. You still might get lucky. Remember though, you may need a deposit of 25pc minimum. Additionally, the following also clarifies how to get a mortgage with bad credit.
Steady Source of Income
Also, you can still have a bad credit history even if you have a steady source of income. Reliable income indicates that you can most probably make all your payments. Still, your application may face rejection due to the type of bad credit. You might want to call a mortgage broker who deals with such situations.
What Credit Score is Required?
Rating agencies assess your financial history and assign you a rating. This is your credit score.
Every agency has its own system and will therefore assign you a different score. You can’t make a comparison. Lenders might look at one or more of your credit scores to arrive at a conclusion.
Usually, if you have lower credit ratings, it means you have a poor credit history. That’s just how the world works. Most lenders will set a threshold for rejecting an application. This is where your mortgage broker comes in handy. They will assess your current credit score and tell you where you stand with various banks. Hence, you get a clearer picture of your scenario.
The good news is that lenders set different thresholds. Thus, one rejection does not mean more rejections are coming your way. Consequently, you now have a better idea of how to get a mortgage with bad credit.
How to Check Your Credit Score
You need to check your credit score before you submit your mortgage application. In the world of property mortgages, you will come across three big consumer credit agencies. You can ask your mortgage broker for a recommendation between the three: Equifax, TransUnion, and Experian.
What Can You do to Get a Mortgage?
Well, what can you do to improve your credit score? There are a few strategies, but there is no sure-shot way of fixing it. Your priority should be to pay back the debts you owe, especially if they are secured against assets or property.
Try getting rid of shared bank accounts and old phone contacts. They can also affect your rating. Your credit score will not instantly recover. Therefore, you need to go for it as soon as you can.
Now that that is out of the way, prepare yourself. You are seen as a risk by lenders. By preparation we mean saving a large deposit. Another way is to delay your plans. It is not easy, but it is sometimes worth it to improve your credit score. First-time buyers may not like this idea. Still, it affects the interest rates that you will get.
If you do not like the sound of that, you can go another route. You can try out a guarantor mortgage. In this case, someone else promises to cover you if you fail to make repayments. This is a great method if your family can help you out.
Hopefully, this helps you understand how to get a mortgage with bad credit in the UK.
Will Contacting a Bad Credit Mortgage Broker Help?
You may wonder if it is worth it to reach out to a mortgage broker. Well, let’s see what they can do:
- Thorough research of the entire market
- Select lenders who are most likely to offer you deals.
- Give sound advice on how to improve your application.
They are super helpful in a situation where your current fixed-term mortgage is about to end. In this scenario, you are worried that you will not get a new deal because of your bad credit history. They will help you figure out how to get a mortgage with bad credit.
In Case You Need to Re-mortgage with Bad Credit
Ultimately, the question arises whether you can re-mortgage with bad credit. The short answer is yes.
Let’s look at the long version. If you met your current mortgage repayments, you now have an improved credit score. Good for you. Additionally, if your lender was a specialist, you can re-mortgage with a high-street bank. Or even a building society.
Of course, there are still risks involved. For example, the terms of your new mortgage deal are more rigid than your current one. Or perhaps your current deal is more expensive. You might find out that you can’t afford monthly repayments even when they are less than your current ones. Bad credit tends to do that to you. In that case, you become a mortgage prisoner. You cannot switch to better deals.
If you are a prisoner, then your mortgage broker can help you get out. You see, your broker has eyes on every available deal on the market. Even the ones that are not found easily on the high street. Not to mention, different lenders have different criteria. Some lenders may reject late payments over the past two years. On the other hand, some will be all right with one case in the past six months. Honestly, it just depends on who you are dealing with.
