Bad Credit Mortgages

Bad Credit Mortgages
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Bad Credit Mortgages
Bad Credit Mortgages

Mark Schouten joins us to talk all about Bad Credit Mortgages.

Whether you’re buying for the first time, moving, investing or remortgaging we’ve got it all covered.

Listen to the latest podcast below to find out more!

What is bad credit?

Bad credit is anything negative that appears on your credit file. It could be missed payments on a loan, credit card or a mortgage, or you’ve reached a certain amount of late payments and your lender registers a default against you. The other one we commonly see is a County Court Judgement (CCJ).  

Bad credit is anything that will show on your credit file where you haven’t been able to repay some finance. That will reflect on your credit rating and potentially affect mortgage applications.

How do I know if I have bad credit?

The best way to check is to register with a credit referencing agency. Sometimes people don’t actually know that they have something on their file – especially with mobile phone contracts or parking fines. If you’ve moved address for example, you might not even know it’s there. That could mean your mortgage application is declined. 

When we talk to clients, the first thing we ask for is your credit report. There are quite a few credit referencing agencies. The big ones are Equifax, Experian and Transunion. But I recommend a company called Call Credit which essentially combines the big three credit agencies in one place. Sometimes a missed payment might show on your Equifax report but not on Experian, for example.  

Can I get a mortgage with bad credit? 

Yes, you can get a mortgage with bad credit, although it does depend on the severity of the issue. It’s also to do with how recent the debt was. 

There are definitely lenders who will lend to people with adverse events on their credit file. It might mean that you might have to put a higher deposit down. You might be interested in a mortgage with a 10% deposit, but as mortgage brokers we might advise that you can’t get the deal with 10% due to your credit rating. However, we could have a lender who will accept you with a 15% deposit. 

The first thing we do is look at the high street lenders – you don’t necessarily need to go with a specialist lender. Some of the big lenders might pass you on their credit score, especially if the issue was a few years ago. 

There are also lenders who specialise in this market. You might have to put a higher deposit down but you could get a better interest rate. If your credit problem is more severe, you may need to pay a 4% or 5% interest rate. A mortgage is certainly possible – it just means a little bit more research into the options and what will work best for you.

Can you get a mortgage with a 500 credit score?

In our industry, credit scores from a referencing agent don’t always matter to a mortgage lender. Most will actually build their own credit score about you. A mortgage lender won’t give you a 500 credit score, they will fit you within a category rated A, B, C, D or E. They set their parameters on a monthly basis to decide what sort of level of risk they’re happy to take. 

They might, for example, accept anyone on a 15% deposit as long as they fit into a D category. But if they are in the C category they might need to put a 25% deposit down. 

Being registered on the electoral roll can really help and you might find that even though your credit score is poor now, you still have time to improve it. Remember too that after six years any blips on your credit file will disappear. So you might find that your credit score could jump from five hundred to nine hundred if your adverse credit events are fairly old.

Can I get a mortgage with a CCJ?

Yes, you can get a mortgage with a County Court Judgement. The typical ones we see are car parking fines – where you park in a private car park with cameras. They send you a parking ticket but it never gets to you, so you don’t pay it. They go to the courts to register a County Court Judgement against you. A £10 ticket might have turned into a £300 fine that will then show on your credit file. 

The lenders will be interested in how long ago this was, whether the debt has been satisfied and the total amount. If someone had a CCJ of £200 five years ago that they had paid off, that’s a much better situation than an £8,000 CCJ from two years ago that isn’t settled. It will be harder to get that through with a mortgage lender – but it’s still doable. 

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​We are always happy to hear from new clients, so please get in contact today to discuss your mortgage options.

Can I get a mortgage with a default?

Yes, you can. There are various different types of defaults, such as from credit card companies and mobile phone companies. Again, if it was a long time ago, for a small amount and has been paid off, that is easier to manage than a high amount that happened recently. 

Defaults are more common than CCJs. It might be that your record shows six late payments on a mobile phone contract that you thought had ended. We deal with these on a regular basis and can usually get you a mortgage.

Can I get a mortgage with an IVA?

An IVA is an Individual Voluntary Agreement, where you’ve had to enter into a special contract to repay your debt. From a mortgage point of view it’s seen as a type of debt management plan where essentially you can’t manage your debt and have to set up a special plan to repay the money. IVAs can sometimes take a very long time to pay back. 

This is probably the toughest situation to get a mortgage through, but again it is still doable depending on the specific situation. 

How can I improve my credit score?

First, register with a credit referencing company because a lot of them will actually give you hints and tips on how to improve your credit score. Make sure too that you’re registered accurately on the electoral roll. 

Having credit is also important. If you haven’t got any history of repaying debt or credit lenders will actually score you more harshly on their ABCDE structure. You need to have some credit and repay it on a regular basis without exceeding the limit. So if you had a credit card with a balance of £2,000 on it and your limit was 4,000 you’re using about 50% of your allowance. That will give you a good score.

Finally, don’t try and take out lots of different credit in quick succession – that looks like you’re constantly applying for credit. Lenders want to see long-term credit commitments that you’re paying back on time.

What happens if a First Time Buyer has bad credit?

First Time Buyers tend to have lower deposits, and will be aiming for a 5% or a 10% deposit. 

If your credit isn’t perfect, lenders might want 15%. You might need some helpful family members to give you a gifted deposit.

If that’s not an option, it’s worth taking advantage of the Help to Buy Equity Loan scheme. It’s only available on a new build property and you need a 5% deposit. But applying for the Help to Buy loan you could gain 20% more deposit in a loan from the government.

How does remortgaging with bad credit work?

It’s not too different from applying for a mortgage to buy a house. The lenders still have the same criteria, but you might think that your score is better when you’re remortgaging, especially if you’re not amending your mortgage details. That’s because you’ve already got a mortgage that you’re paying on time.

How can a mortgage broker help?

A mortgage broker will make it so much easier for you. A lot of people go to their bank and are told they can’t get a mortgage – but there are hundreds of other lenders out there, and many that specialise in this area. Don’t be afraid to speak to a mortgage adviser. Get your credit report and we’ll be able to tell you what the options are. Just because you’ve been told no by someone else, it doesn’t mean that we can’t get you a good mortgage deal.