The Bad Credit First-Time Buyers Mortgage Guide
Before the 2008 credit crunch, regulators didn't control affordability as tightly in the UK lending market.
Since then, lenders have had new rules to ensure they aren't lending irresponsibly to people who can't afford to keep up with the repayments.
This factor is why a lender will ask about your income, debt, and regular expenses - they don't care how many credit cards you have but need to verify that they can lend to you under their operating policies.
As many high street banks and mainstream lenders shy away from helping bad credit applicants get onto the property ladder, a considerable number of specialist lenders have filled the gap with products created specifically for bad credit applicants.
Therefore, you can get a mortgage with bad credit, even if it's your first home - but it's probably not going to be through your regular bank.
Finding Mortgage Offers for First-Time Buyers With Bad Credit
The tricky part when looking for bad credit lending is that it's almost impossible to know which lenders have a flexible policy and which will reject your application outright.
Applying to unsuitable lenders can cause no end of problems. If they run hard credit searches, these appear on your credit file and further exacerbate the situation.
There are lots of things you can do to make the process easier:
- Check your credit report. If you know you've had a CCJ or late payments, it helps to get in front of it and work out exactly what's on your credit file. You can query any errors and ensure all the information is correct.
- Improve your credit rating. Simple steps like registering on the electoral roll immediately boost your credit score. You can also pay off smaller debts and close unused credit card accounts.
- Save up as large a deposit as you can. The higher the deposit, the lower the lender's risk, and the more likely they will accept your application even if you have issues with your credit file.
The best way to ensure you're getting the top mortgage offers available is to work with a whole-of-market independent broker, like the experienced team at Revolution.
We can advise on all aspects of your mortgage, including things like:
- Which lenders will accept your available deposit level.
- Where you'll find better rates for first-time buyers.
- Those mortgage providers with flexible bad credit policies.
- How you can get support from a government first-time buyer scheme.
Give us a call or email the team at email@example.com if you'd like to run through any of these factors.
What is the Average Mortgage Rate for First-Time Buyers?
Mortgage rates vary considerably, so it's tough to give an average rate.
This element also depends on the type of first-time buyer mortgage you take out:
- Fixed-rate mortgages offer a static interest charge for the first two, three or five years. You can get fixed deals for up to 10 years, but they’re less common. When the agreement ends, it's usually advisable to remortgage, as you'll revert onto the lender's Standard Variable Rate, which is generally much higher.
- Tracker mortgages charge interest based on the Bank of England base rate, so your mortgage payments will go up and down each time the base rate changes.
- Discounted variable mortgages usually base the charge on their SVR but capped or discounted for a fixed period. Your mortgage payments will go up and down, but they'll have a maximum.
You might also consider a guarantor mortgage if you're struggling to find a home loan as a first-time buyer with bad credits.
Guarantors act as a security blanket and make a formal agreement to take over responsibility for the loan if you don't keep up with the repayments.
Another option is an offset mortgage, whereby your mortgage account is linked to your savings or current account. If you have savings, you only pay interest on the difference between what you own and owe to reduce your monthly outgoings.