It’s no secret that having bad credit can make life more difficult. And if you have bad credit, you may think that you can’t get a mortgage. But you can! You may not have as many lenders to choose from, but there are mortgages available for people with bad credit.
In this blog post, we’ll discuss everything you need to know about bad credit mortgages. We’ll cover how bad credit mortgages work, what you can do to get one, and more.
If you’ve got bad credit don’t give up hope, there’s still a chance you can buy your own home.
Table of Contents
What is a Bad Credit Mortgage?
A bad credit mortgage is like a standard mortgage in that it’s a type of loan that’s secured against a property. As properties cost a lot of money, most people can’t afford to buy one outright. So, taking out a mortgage lets you buy your own home.
Bad credit mortgages are offered to people who have a poor credit history. Your credit score might be low if you’ve had trouble repaying your debts in the past. And this makes it harder to borrow money. But that doesn’t mean you can’t get a mortgage.
Can I get a mortgage with bad credit?
Yes, you can get a mortgage with bad credit. Despite people with low credit scores being considered high-risk borrowers, it’s a secured loan. Put simply, because the property is an asset, lenders can sell it to recover their money if you can’t pay. It gives them some security, meaning you’re more likely to be accepted.
That’s why you can still find mortgage providers who are willing to lend to you even with bad credit.
How do bad credit mortgages work?
Bad credit mortgages work in a similar way to regular mortgages. But as bad credit mortgages are designed for people with a poor credit history, their terms are different.
The main differences are listed below.
- Mortgages for bad credit will have higher interest rates than standard mortgages. But you can still get a fixed or variable interest rate mortgage.
- A fixed rate means you pay the same amount each month for a set period.
- A variable rate mortgage means the amount you pay will go up or down. It’ll change in line with the lender’s mortgage interest rate. And that changes in line with the UK’s Bank of England base rate.
- You’ll need to put down a higher deposit with a bad credit mortgage.
- You’ll have a smaller selection of mortgage providers to choose from.
What should I do to get a bad credit mortgage?
To get a bad credit mortgage you’ll need to do what you can to improve your chances of being approved. You can do this by following these simple steps.
1. Work out what you need
There are two aspects to this, what size home you want to buy and how much money you’ve got. By being realistic about what you can afford, you can get to work on your finances.
Getting yourself into a strong financial position will help you when you come to apply for the mortgage.
2. Check your credit report
When you apply for your mortgage, the lender will do a hard credit check. They’ll look at information on your credit history to help them with their decision. Before they look at your credit report, check it yourself. You can do this by going to the three top Credit Reference Agencies (CRAs) in the UK. They are:
- Experian
- Equifax
- TransUnion (formerly Callcredit).
Make sure there are no errors on your credit file. Simple things like an incorrect address could stop you from being approved.
3. Improve your credit score
Even if you’ve got a poor credit rating, there are things you can do to improve it. Here are some tips to get you started.
- If you’re not on the electoral roll, get registered on it. This can quickly give your credit score a boost.
- If you’ve missed any payments in the past, spend a few months making your payments on time. Do this before you apply for a mortgage as it’ll show the lender that you can be reliable.
- Don’t apply for any other credit in the lead up to you applying for a mortgage. Loan applications reduce your credit score.
4. Save as big a deposit as you can
The more you can put down as a deposit, the more it’ll help you when you apply for a mortgage. Here are a couple of tips to help you save.
- If you’re aged between 18 and 39, save your deposit in a LISA account. You can save up to £4,000 a year in it. When you do, the government will top it up by 25%, up to a maximum of £1,000.
- Would your family be willing to gift you some money? If they can afford it and they don’t need you to pay it back, it can help you secure the mortgage. Of course, you could always pay them back in future if your finances improve.
5. Include your rent on your credit file
If you’re renting and you pay your rent on time, you could get this reported on your credit file. You can do this by signing up to a service that will record your rent payments with the CRAs. Here are a couple of services that you can do this with.
Showing that you can pay your rent on time can help your mortgage application as well as help your credit score.
How can I apply for a bad credit mortgage?
If you’re looking for a bad credit mortgage in the UK, it’s a good idea to approach a mortgage broker. These brokers can help find mortgages for people with poor credit ratings. And they can help find you the best deal possible.
The application process for a bad credit mortgage can be more complex than it is for a regular mortgage. That’s because the lender will want to be sure you can afford it. So, be prepared to do the following.
- Provide detailed information about your financial history. You may want to explain what happened in your past which caused your low credit score. Be honest, and show the lender that you’re in a better place now financially.
- Provide details of your employment and income. Lenders may want to see extra payslips and bank statements if you’ve got a bad credit history.
- Provide information on your outgoings as well as your income.
- Be willing to have a hard credit check completed, but this won’t stay on your credit file for more than 12 months.
How much can I borrow on a poor credit mortgage?
If you’re looking for a mortgage but have poor credit, you may be wondering how much you can borrow. Lenders will only let you borrow what you can afford. They’re likely to use your income to help them decide how much that might be. For example, some lenders will only let you borrow 4 times your annual income.
Other factors may influence the amount you’ll be able to borrow. These might include:
- The value of the property you want to buy
- Your age
- Your employment status
- Your income and outgoings
- Your credit history
Your mortgage broker will know how much the lenders are likely to offer based on your situation.
What is the loan to value rate for a bad credit mortgage?
The loan to value is the amount the lender is willing to lend to you against the value of the property. You can calculate how much this is by following the steps in our example below.
- Let’s say you want to buy a property for £150,000. Then you find out the loan to value is 70%.
- The amount you’ll be able to borrow is 70% of £150,000. You work this out by using the following equation:
ÂŁ150,000 x 0.7
The answer to this is £105,000. - If you take £105,000 away from £150,000, you’re left with £45,000. This would be the deposit you’d need to save to buy the house. The £105,000 would be on your mortgage.
Bad credit mortgage providers are unlikely to lend you more than 75% of the value of the property. Depending on your credit score, this may be less. This means you’ll have to find at least 25% to put down as a deposit.
Can I get a mortgage if I have bad credit and no deposit?
You’ll struggle to find any lenders in the UK who’ll give you a mortgage without you putting down a deposit. A mortgage with no deposit is known as a 100% mortgage. They used to be available in the past but they’re not generally available.
The only way it might be possible to get a mortgage without a deposit is if you have a guarantor. But the guarantor would have to put up some sort of security, such as savings or their own property.
Can I still buy a house with a small deposit if I have bad credit?
You may think that if you only have a small deposit and you’ve got bad credit, you won’t be able to buy a home. But you’d be wrong. There are other ways to buy a home.
1. Shared ownership scheme
Buying a home through a shared ownership scheme means you don’t own the whole property, you just buy a share of it. You then pay rent to the landlord who owns the rest of the property. The landlord is usually a housing association.
These schemes are designed for people who can’t afford to buy a whole property themselves. They’re also good for people who can’t raise enough deposit.
The table below shows the main advantages and disadvantages of shared ownership schemes.
| Advantages of the shared ownership scheme | Disadvantages of the shared ownership scheme |
| The deposit is lower. It only has to be portion of your share of the property. | Not all lenders are willing to give you a mortgage on a shared ownership scheme. |
| You can buy extra shares in the property over time, so you could end up owning it outright. | You don’t fully own the property. |
| You can sell your share any time you want. | You’ll have to give the housing association first refusal if you want to sell your share. |
| The housing association who you buy it with tend to take care of any maintenance for up to 10 years. | You won’t be able to make any alterations without the housing association’s consent. And they may not let you do what you want. |
2. Guarantor mortgages
A guarantor mortgage is one that you take out with someone else. The other person is usually a family member or close friend. They guarantee that they’ll pay the mortgage if you can’t.
The table below lists the main advantages and disadvantages of guarantor mortgages.
| Advantages of guarantor mortgages | Disadvantages of guarantor mortgages |
| The deposit is lower. You may even get 100% mortgage if the guarantor has a home of their own that they could include as security. | Your guarantor’s property could be at risk if they include it as security against your mortgage and you can’t pay. |
| You may be able to borrow more than you would otherwise would. | The interest rate is still likely to be higher than with a standard mortgage. |
| You get to buy a home even though you’ve got a poor credit score. | Your guarantor can’t be used if they have a bad credit score. |
| By keeping on top of your repayments you could boost your credit score. | By borrowing more, you might fall behind in your repayments which would affect your credit score. |
3. Help to buy mortgages
The help to buy scheme is one offered by the government. The way it works is that the government would provide an equity loan of up to 20% of the house value. You’d have to put down 5% deposit. The equity loan would be interest free for the first 5 years and was only available to first time buyers.
We haven’t gone into detail here as applications for this is closed now. The way they work is also quite complex. So, if you’ve applied for some help to buy mortgage, make sure you understand the rules.
Will having bad credit make my mortgage more expensive?
The interest rate on a mortgage for someone with bad credit will be higher than for someone with good credit. This’ll make it more expensive.
The terms of the mortgage may be less favourable for someone with bad credit too. The following requirements may be a condition of your borrowing on a bad credit mortgage.
- You could be asked to put down a bigger deposit.
- You may have to pay large up-front fees.
Which lenders offer mortgages for bad credit?
The lenders who offer mortgages for bad credit are usually specialist lenders. But there are some high street lenders who may consider offering you a mortgage. It depends on what’s caused your poor credit rating.
Going through a mortgage broker can be helpful. They’ll be able to source the lender who’s most likely to consider giving you a mortgage with your credit history.
FAQs – Bad Credit Mortgages
What is the lowest credit score I need to get a bad credit mortgage?
There’s no single credit score that all lenders use when assessing your mortgage application. They each use their own scoring criteria. The best thing you can do is to try your best to improve your score before you apply. The higher your credit score, the better your chances are of being approved.
How many years of credit history does mortgage lenders look at?
Mortgage lenders will look at the last 6 years of your credit history. This means they’ll be able to see any defaults or other mishaps that have occurred during that time. They’ll also be able to see how long you’ve lived at your current address.
This information helps them decide whether to lend to you, so it’s worth making sure it’s correct.
Can I remortgage with bad credit?
Yes, you can still remortgage if you’ve got bad credit. You’ll have the same terms as anyone else who’s trying to get a mortgage with bad credit. This means you’re likely to have to pay higher interest rates. But find out from your existing lender if they’re willing to let you move on to a new deal.
Disclaimer: We are not providing financial advice. These are just tips for informational purposes. Also, we are not affiliated to any of the external parties linked, they are provided for reference only.