A lot of potential borrowers have debt, but having debt is not necessarily a bad thing, you can have ‘good debt’.
However, we are often approached by potential borrowers who have a history of bad credit and are unsure whether they can get a mortgage.
There is no straightforward answer to this as it will very much depend on your personal circumstances. However, there are lenders out there who specialise in bad credit mortgages for those with credit issues and poor or low credit ratings.
What is considered to be bad credit?
If you have bad credit it means you have at some point failed to keep up with one or more of your credit agreements which has been recorded on your credit file and affected your credit score. It could be one of a number of things that can cause bad credit such as:
- Missed or late mortgage payments
- Bankruptcy
- CCJ’s
- Defaults
- Repossession
- Debt management plan
- IVA’s
- Debt relief Order
- A high amount of unpaid debt
- Payday loans
Other things, like not being on the electoral register and having no credit history can affect your credit report too.
Your credit file is important when applying for a mortgage, it will be one of the first things potential lenders will view when assessing your application.
Do these credit issues carry different levels of severity?
When bad credit is a factor, lenders looking at an application will also determine your eligibility based on the severity of the issue and the date the issue was registered. They will also consider how you meet the rest of their eligibility criteria and affordability requirements.
Repossession and bankruptcy are considered the most severe types of bad credit whereas missed phone bills and utility bills are less severe.
Either way there are still specialist lenders who will consider your application with a more severe issue. Their decision will mostly come down to how historical the adverse is.
Note: if your bankruptcy has not been discharged by the courts you cannot apply for a mortgage. It usually takes around twelve months.
How do I get a bad credit mortgage?
Firstly, you should always be up front and honest about any issues that could affect your application.
Approaching a high street lender could mean an automatic decline. There are specialist lenders out there who provide mortgages for those with adverse credit history. They tend to be more flexible, but as we’ve said, it will come down to the severity of your issue, how long it has been on your credit file and how well you meet their other criteria.
As well as your credit history lenders will base their decision on:
- Income – they will want to know your employment status and if you’re self-employed. The more you earn, the more you could borrow.
- Deposit – The amount of deposit is assessed against the level of risk i.e. the bigger the deposit the more minimised the perceived risk.
- Age – Lenders will tend to have an upper age limit which will impact what term length you are looking for.
- Outgoings – such as debt repayments and/or dependents.
- Property type – if your proposed property has non-standard construction i.e. thatched roof or timber frame.
It’s important to note that if you have adverse credit and are looking for a mortgage the rates you may be offered might be higher due to the level of risk on the lender. However, there are reasonable rates out there if you look. The key to finding them is to make sure your looking at whole market.
Speaking with a whole of market broker who specialises in adverse credit could be your best asset. They will offer bespoke advice and find the right lenders for you based on your circumstances.
How can I improve my chances of getting a mortgage with adverse credit?
There are some steps you can take to give you the best chance of getting a mortgage with credit issues.
As we’ve mentioned previously, your credit report will be one of the first assessments a lender will make. Knowing everything that features on your credit file is important.
You need to ensure it’s up-to-date and check that everything is accurate. Unfortunately, some agencies can get things wrong. You should always dispute anything that appears inaccurate like outdated bills, wrong addresses, missing electoral register information, outdated financial associations (family members/partners) and credit accounts no longer in use.
Furthermore, not all lenders will use the same credit reference agencies. There are three main report agencies and their reports can differ greatly. It’s important you check all three of them. Sites such as Check My File are useful as they give you access to all reports in one place.
How much deposit you have will also improve your chances. With bad credit, the more deposit you have the better. A lot of lenders will require a larger deposit due to the risk they are taking. So, although the deposit requirement in the UK stands at a minimum of 5%, with adverse credit you could expect to need a deposit between 10% and 25% that will depend on the credit issue.
Finally, you stand a better chance the more historical your issue is. This is especially important when it comes to things like bankruptcy, IVA’s and repossession. Lenders will usually have a minimum age these types of credit issue need to be before you can apply to them.
How can a mortgage advisor help?
By speaking with a specialist advisor in bad credit who is whole of market you have access to every UK lender, including adverse credit lenders. They can be vital in getting your mortgage application approved.
Not all advisors specialise in bad credit mortgages and it’s important that if you have bad credit you find an advisor who does. If you don’t it could result in failed applications with lenders who don’t match your individual circumstances.
As long as you’re open and honest with advisors they should be able to find you the right lender based on your individual circumstances and make an accurate application. Having any undisclosed credit issues upon application, it will simply be declined.
Furthermore, they will be able to offer you advice especially in terms of how to clean your credit file.
Contact us at Online Mortgage Guru on 0345 3669799 or email us via info@theonlinemortgageguru.co.uk and we will put you in touch with a suitable specialist to handle your enquiry.
