Almas Uddin
Founder and Mortgage Advisor
21 Aug 2022
Over the last few months, we've seen base rates continue to rise, causing the interest charged on a mortgage to increase correspondingly.
Lenders are introducing new measures to ensure they lend responsibly, potentially making it more difficult for applicants with an adverse credit history to secure the borrowing they require.
You can take several steps to improve your prospects of mortgage approval and start rebuilding a positive credit history, which we'll run through here.
Understanding Adverse Credit Scenarios
Everybody has a credit history, which reflects your credit borrowing, repayment activities and other factors that tell a mortgage lender how likely you are to be able to afford the amount you apply for.
With a good borrowing history, applicants who have always repaid debts in full and on time will have a positive credit score and be regarded favourably by lenders.
In contrast, applicants with issues on their credit file, a history of late payments or other adverse circumstances are more likely to find a lender hesitant to offer them a mortgage.
How Different Adverse Credit Types Impact a Mortgage Application
Of course, numerous different scenarios might come into play, and having a less-than-perfect credit score doesn't necessarily mean you will not be able to find a suitable lender.
Mortgage providers assign a risk rating to applicants, which varies between potential adverse credit situations.
- Defaults are the same as a missed payment and show that you haven't paid a bill such as a mobile phone or utility charge on time or have been late with a loan repayment instalment.
- Debt management plans (DMPs) allow those in serious debt to set up a plan to spread their credit repayments over a longer period and make affordable repayments to chip away at the total. A DMP might be categorised as a default, hence the perception of it being an adverse credit marker.
- Country court judgements or CCJs occur when an individual has been taken to court and ordered to pay back their debts, causing considerable damage to their credit report.
- Bankruptcy is one of the most severe types of bad credit, making it extremely difficult to approve.
Credit issues remain on your report for six years. Even if you have had substantial problems in the past, you may be able to secure a mortgage when the record has been removed or if you have since built up a good history of financial responsibility.
How to Get a Mortgage With a Low Credit Score
You can do several things to bring your credit score to an acceptable level and enhance your chances of mortgage approval.
Although finding a mortgage with adverse credit can be more difficult, it often isn't impossible.
Applicants should initially take any steps available to repair their credit report, such as paying all bills on time. Lenders will also consider the context of adverse credit and may review supporting information if the issues were caused by illness or redundancy.
Mortgage lenders will also consider several other factors:
- Whether you have several months of responsible spending evidence leading up to your mortgage application.
- A guarantor can alleviate some of the lender's risk and should be someone with positive credit who guarantees your loan if you default.
- The lender will review the credit records of both individuals in a joint mortgage application, so one applicant with an adverse credit score may not be too much of a limiting factor.
- Repaying loans and credit cards and closing down accounts you are not using can impact your credit score.
It can take time to rebuild a good credit record, so if you have issues on your credit report that are due to expire, it could be beneficial to delay your application until you can present a stronger case.
The key is always to be upfront since a credit assessment will highlight any past issues. Failing to declare the relevant information on your application will result in immediate rejection.
Professional Advice Finding a Mortgage With Adverse Credit
Given the volatility of the current economy, it isn't surprising that lenders have made their eligibility rules and affordability assessments stricter, and applicants with a low credit score may find it challenging to secure a mortgage.
However, you can restore bad credit with time and effort and take positive steps to improve your financial position.
Mortgage lenders want to approve applicants but are responsible for being cautious in uncertain times and ensuring they do not provide a loan that the borrower won't be able to repay.
Working with an independent broker can make a big difference, understanding what you can afford to borrow, how to present your application and the costs and interest charges you should expect to pay.
Millions of people experience adverse credit, and it isn't a dealbreaker, but understanding the options and picking the most suitable lender is important.
For more assistance with bad credit mortgage applications or repairing your credit score to purchase a home, please contact Revolution Finance Brokers at your convenience.
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