What Does Bad Credit Mean?
Bad credit is a sweeping term and might apply to any number of scenarios. Generally, this means that someone has fallen behind or not kept up with repayments on credit agreements in the past.
This could range from being a few days late on a payment, to having fallen into arrears and not made repayments at all.
Your credit report collates information about your finances for the past six years, and if you have credit issues showing on the report, it can be challenging to find a mortgage provider who will lend to you.
Can I Get a Mortgage With Bad Credit History?
You can, yes, and while highstreet lenders might not be able to help, that doesn't mean that an experienced broker cannot find a great deal for you.
The right lender depends on lots of factors, including:
- How severe your credit problems are.
- How long credit issues have shown on your credit file.
- How closely you meet the lenders' affordability and eligibility criteria.
Bad credit mortgage brokers work with clients in all sets of circumstances, and Revolution Brokers specialise in finding mortgage lenders who will be able to approve your application.
Which Mortgage Lenders Offer Bad Credit Products?
This sort of lender specialises in helping customers get mortgage borrowing, even when they have credit issues.
Many mainstream firms cannot help applicants who have had financial difficulties, and others will reject applications that fall outside of their lending policies.
Revolution Brokers work with respected lenders who support applications from:
- First-time buyers who have bad credit or no credit history.
- Applicants with low credit scores, or no score at all.
- People who have suffered adverse credit issues in the past.
It is essential to work with a broker to apply to a bad credit mortgage provider since the rates on offer will usually be higher than for people with a healthy score.
However, if you have a reasonable deposit and can demonstrate reliable income, Revolution Brokers can negotiate terms and rates on your behalf.
How Does Mortgage Lender Assess Eligibility for Bad Credit Applicants?
Every lender is different, but all will consider two primary factors when deciding whether they can lend to an applicant with bad credit:
- What adverse credit you have experienced and how serious it was. Missing a bill payment is, of course, much less serious than having been bankrupt, so a lender will want to check what happened and how much borrowing was involved.
- How long ago, your credit issues occurred. Most credit checks for mortgage applications go back for six years. If your credit issues were at the start of this time and your finances have since recovered, the better terms you will achieve than if you have recently experienced severe credit problems.
If you have been bankrupt, you cannot apply for any mortgage until the bankruptcy has discharged, which is typically in a year. Many lenders will not consider lending to anybody who has been bankrupt for three to four years and will also need to see good credit history since.
The interest rates available for applicants who have had a property repossessed in the past are also much higher than for people with good credit.
That means the longer ago your credit issues, the better a deal you will be able to achieve.
Can I Get a Mortgage With Bad Credit From Any Lender?
All sorts of lenders provide bad credit mortgages, although the rates and criteria will vary significantly between them.
Even some high street banks offer bad credit mortgages - however, that doesn't mean to say that they will be as competitive as specialist lenders who support applicants with bad credit.
We have summarised some of the larger lenders and what scope they offer for lending against bad credit:
Applicants with mild credit issues:
Applicants with severe credit issues:
Applicants with very severe credit issues:
These are indicative rates on the last published tables and will be subject to changes and individual lender criteria.
For current rates and to select the best mortgage provider for your circumstances, give the Revolution team on 0330 304 3040.
Do Different Types of Credit Issues Make Getting a Mortgage With Bad Credit Harder?
Your chance of securing lending depends on how serious the adverse credit issues are. Less serious problems such as missing a phone bill are not going to have as much of an impact as a bankruptcy or property repossession.
Specialist lenders are more flexible when it comes to considering bad credit applicants, and can be the best option for applicants with a range of credit issues:
- Low credit score or no credit history.
- Late payments and missed mortgage repayments.
- Defaults, CCJs and IVAs.
- Debt management schemes.
- Repossessions and bankruptcy.
- Payday loan history.
- A combination of multiple credit issues.
Mortgage lenders who are experienced in bad credit applicants will look at the reason for the issues, how serious they are, how long ago they occurred, and whether you meet other criteria outside of your credit file.
What Other Factors Impact My Mortgage Eligibility Aside from Credit History?
Your credit score is one of many factors a mortgage lender will consider. Other important areas include:
- Employment status and income: regular employment and a higher salary all make it easier to borrow. If you are self-employed or have a non-regular income pattern, a specialist provider is more likely to be able to lend to you.
- Deposit available. The higher the deposit, the better the terms offered - usually you'll need at least a 5% deposit for a residential property, and from 15% and above for a buy-to-let.
- Your age. Some lenders have no age limits, whereas others will cap lending on applications over 75 or 85.
- Expenses and outgoings. If you have other loans, debt, dependants or commitments, these will be used as part of the affordability calculation.
- The value and type of property. The higher the value of the property against the mortgage requirement, the better. Non-standard properties such as those with a thatched roof or a timber frame are best mortgaged through a specialist lender.
How to Get a Mortgage With Bad Credit From a High Street Bank?
Possibly - some mainstream banks do offer bad credit mortgages, but often the rates and terms offered are less competitive than those from specialist bad credit lenders.
Below is an indicative summary of how long must typically have passed since your bad credit issues for a high street lender to be able to consider your application:
These are rough indications of how likely a high street lender is to be able to consider an application within each timeframe of experiencing a bad credit problem. There is no assurance that a mainstream lender will consider or approve your application.
The best action in any of these scenarios is to work with an experienced bad debt mortgage broker who can recommend the best lenders for you.
Why Does My Salary Impact My Mortgage Application?
Mortgage terms and rates change frequently, so it is impossible to give average interest rates for a bad credit mortgage. However, if you have a low credit score, the interest rates likely offered will be higher.
The higher and more stable your salary, the easier it is to demonstrate affordability and assure a lender that you will be able to keep up with repayments.
High-income applicants - lenders usually offer a multiple of your annual salary. If you have bad credit, this can be difficult as no matter how much you earn, you are still considered a high-risk applicant.
It is therefore vital to apply to the right lenders who offer higher multiple salary calculations - some will lend up to 4.5 x your income, and others can lend as high as 6 x your salary.
Low-income applicants - the combination of a low income and bad credit means that you will need to use a specialist broker to find a competitive mortgage.
Niche lenders have different options to help you get the lending you need; such as having a guarantor in place, using benefit income to back-up the affordability calculation, or recommending a government scheme such as Shared Ownership.
You may be eligible for mortgages such as a Joint Owner Sole Proprietor mortgage, which is often an option for first-time buyers and means that a family member can help you purchase your home, without taking away any proportion of ownership.
How Can I Improve My Credit Rating?
There are lots of ways to improve your credit score, and if you've had issues in the past this is well worth doing as it may make a big difference to securing a mortgage, and the rates you are offered.
Here are some ways to improve your credit score:
- Review your credit reports for errors. Most lenders use a credit referencing agency like Equifax, TransUnion or Experian, and you can usually access your credit report for free. If you find any out of date information, errors or inaccuracies you can query this and have your credit file updated.
- Take out small amounts of borrowing. If you have no credit history, it can be as challenging to borrow as if you have unfavourable credit ratings. You can take out an adverse-specific credit card, borrow small amounts and repay the balance in full every month. Over a few months, this will improve your credit score.
Getting a Mortgage With Bad Credit UK and a Low Credit Score
You can, yes. Most lenders will run a credit check, but the importance of your credit score depends on their policy and how well you fit other criteria.
Specialist low credit lenders are usually more flexible, whereas traditional mortgage providers will leave it to their underwriter to decide whether they can make an offer.
Credit scores are calculated by combining information from the largest UK credit referencing agencies - Equifax, Experian and TransUnion. Each uses a different scoring system, so they are not easy to compare.
- Equifax gives credit scores out of 700, with 475 and above 'excellent'.
- Experian scores credit out of 900, with 700+ being 'good' and 800+ being 'excellent'.
- TransUnion assigns a score out of 700, and then allocates a rating of 1-5, with five being outstanding.
Niche lenders are less interested in your credit score than in your credit history, and how well you have managed your finances since adverse credit issues.
Information Required When Applying for a Mortgage With Bad Credit
You will also need to provide information about your income, as this will not show on your credit file.
Some lenders can offer up to a 95% LTV, which means needing a 5% deposit. Others will offer a much lower LTV and thus require a higher deposit.
Revolution Brokers work with specialist lenders who can even support applicants with zero credit scores, so there are always options no matter how severe your previous credit issues may have been.
In this case, the most critical factors will be around demonstrating you can afford to keep up with repayments and meet the lending criteria - and so it is essential to work with a broker who can help compile your application to meet these points.