How to get a mortgage with bad credit
There’s a common misconception that mortgage companies will never lend to those with a poor credit history. Though having a credit record that is less than squeaky clean may limit your options, you certainly shouldn’t give up hope of ever purchasing your own property if you have encountered financial difficulties in the past.
There are plenty of bad credit mortgages on offer from specialist lenders that are willing to be more flexible with their criteria and consider cases from individuals who have had arrears, defaults, county court judgements (CCJs), individual voluntary arrangements (IVAs), been placed on debt management plans or suffered bankruptcy in the last six years.
You may need to pay a slightly higher interest rate when you first take out the loan, as the mortgage lender will automatically consider you to be a higher risk. But if you keep up your repayments, and take active steps to improve your credit rating, there’s no reason why you can’t find yourself in a much better financial position in the months and years to come – and access a much better deal when you eventually come to remortgage.
Here, you’ll find more information on adverse credit mortgages, along with a list of the things you can do to improve your chances of securing a mortgage offer if you have a poor credit history.
- Credit and credit reports explained
- Check your credit file
- What is a bad credit mortgage?
- How difficult is to get a mortgage with adverse credit?
- What will lenders accept – and what won’t they accept?
- What kind of deposit will I need?
- Can I get a mortgage with late payments on my credit report?
- Can I get a mortgage with a CCJ?
- Can I get a mortgage after defaulting?
- Can I get a mortgage if I’m on a debt management plan (DMP)?
- Will an IVA affect my mortgaging prospects?
- Can I get a mortgage if I've been declared bankrupt or am currently bankrupt?
- Can I remortgage my home with bad credit?
- What kinds of specialist mortgages could I get with adverse credit?
- How can I increase my chances of getting a mortgage if I’ve got a poor credit history?
- Your adverse credit mortgage checklist
- Speak with one of our experts
If you’d rather discuss your options during a consultation with an experienced adverse credit mortgage broker, contact CLS Money today. Our advisors have excellent connections with a range of lenders from the wider market who may be willing to take on cases like yours. They are not limited to popular products from the major banks and building societies and can source deals from more niche providers that specialise in helping borrowers in your situation.
For borrowers in need of a specialist bad credit mortgage broker, CLS is ready and waiting to help.
Credit and credit reports explained
When you take out a loan or agree with a lender to pay for goods and services at a later date, you’re entering into what’s called an instalment credit agreement. The lender will allow you to pay in instalments, or with a lump sum, on the condition that these payments are met at certain times, and possibly even with added interest.
Revolving credit agreements, such as those taken out with credit cards, enable you to borrow money as and when you need it, within a set limit. Once you have paid off some or all the debt you have acquired, you can re-borrow as much as you like, within the confines of the limit the lender has set for you.
Alongside your basic information, such as your name, address and birth date, a timeline of all your instalment and revolving credit commitments, aka all the credit accounts you have opened and closed in the last few years, will be visible on the credit reports that are readily available from credit agencies such as Experian, Equifax and TransUnion. Crucially, a credit report will also contain detailed of missed payments, account collections, foreclosures, repossessions, and bankruptcies.
These reports can be viewed by anyone who is considering offering you a credit agreement.
To help companies make better lending decisions, the three main credit agencies listed above will analyse all your credit data to calculate your overall credit rating. They will assign you a score between 300 and 900, and it is this score that will help lenders determine what kind of borrower you are.
The lower the score, the higher the risk to a lender.
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What is a bad credit mortgage?
When we talk about adverse credit mortgages, we are referring to mortgages specifically designed for people who have struggled to keep up with credit agreements in the past, and who therefore have a lower than average credit score.
How difficult is to get a mortgage with adverse credit?
Having a bad credit score will affect your chances of getting a mortgage because it demonstrates to the lender that, based on your previous financial behaviours, you are more likely to default on your payments and therefore put their capital at risk.
Mortgage companies will explore many factors when they are assessing your application. To calculate interest rates, preferred loan to value (LTV) ratios and other mortgage terms, lenders will analyse your adverse credit file in more detail to work out what happened, how long ago it happened, and what impact the incident(s) had on your overall financial position.
If they don’t like what they see, they may choose to offer you a deal with higher interest rates to mitigate risk, or they may ask you to put down a higher deposit towards your purchase as extra security. Or, they may decide not to offer you a deal at all.
Don’t be disheartened, though. Lenders’ appetite for risk has increased in recent years, and more and more banks and building societies are now offering specialist mortgages for people with a history of poor credit. This influx of new adverse credit products into the market has led to increased competition, too, and rates have decreased as a result. You just need to look beyond the mainstream High Street providers towards niche providers who are prepared to take a view on your circumstances.
(Remember, bad credit mortgages are not always advertised. For the best chance of finding a great deal, you need to speak to an experienced mortgage broker who has direct access to products from across the whole of the market.)
What will lenders accept – and what won’t they accept?
It’s a great question – but as affordability criteria vary from lender to lender, it’s not one that can be answered in a sentence or two.
Some black marks on your credit file will have more of an impact on your overall credit score than others. For example, a period of bankruptcy will be much more concerning to a lender than a couple of missed utility bills. Similarly, an issue that happened five years ago will hold much less weight than something that occurred within the last 12 months.
However, incidents that seemed minor at the time will continue to be displayed on your file for up to 6 years. So, to increase your chances of securing a good mortgage deal, you need to avoid defaulting on payments altogether – or at least wait until these issues have been removed from your file.
It’s worth noting at this point that your credit rating is only one piece of the puzzle. Lenders will have many other eligibility requirements and will nearly always look at your employment status, how much you earn, what kind of property you want to buy and how much you want to borrow in addition to your credit history before coming to a final lending decision.
They will also be more willing to accept your case if they can see you have taken steps to improve your position and are now much more financially secure.
What kind of deposit will I need?
If you want to buy a house with bad credit, you will typically need to put down a bigger deposit than someone with a better credit record.
In the UK, the usual minimum requirement for a deposit is 5% of the purchase price. For Buy to Let investments, this is slightly higher at 15%. If your credit issues are comparatively minor – and if they took place a matter of years, not months, ago – there may be lenders in the wider market who will consider a loan to value (LTV) of between 90% and 95%. However, if your credit report contains more severe marks, such as IVAs, repossession orders or bankruptcy notices, and these took place within the last 3 years, you should expect to have to put down closer to 25%.
If you do not have a sizeable deposit, you could look into getting a residential home loan with the help of a guarantor. There’s still no guarantee your case will be accepted, though, as the lender may still consider you to be too much of a risk even if a friend or family member is willing to vouch for you.
What is your loan to value (LTV)?
To work out your LTV, input your figures below.
Can I get a mortgage with late payments on my credit report?
Yes – but you will likely need to approach a niche lender as opposed to a High Street bank. Mainstream mortgage providers use much stricter eligibility criteria and may not look kindly upon individuals who have been unable to keep up with bill, rent or mortgage payments in the past.
You will have a much better chance of success with a mortgage lender who is willing to delve a little deeper into your credit file in order to understand why the payments were missed in the first place. Additionally, you will also be more likely to secure a mortgage with a history of late payments if these oversights happened more than three years ago, and if you can prove that you are now on top of your finances and are not in arrears with any of your credit accounts (ie, you do not owe more than one payment for the current month).
As always, we would suggest getting specialist advice from our bad credit mortgage advisors, who have a great deal of experience in securing home loans for people with missed payments on their credit file.
Can I get a mortgage with a CCJ?
Some lenders will dismiss your case straightaway if your credit file contains mention of a County Court Judgement (CCJ), even if it has been settled. Others will take a more positive view on the situation as long as you meet other distinct eligibility criteria, you have a reasonably sized deposit (usually 10% or more ), and/or your CCJ was registered more than three years ago.
CCJs registered in the last twelve months will have much more of a negative impact on your chances of securing a mortgage offer. Particularly large CCJs, multiple CCJs, and satisfied CCJs will restrict your options further.
Can I get a mortgage after defaulting?
Many lenders will not loan to someone with defaults on their credit file. However, you’ll be pleased to hear that there are some specialist default mortgage providers out there that will be prepared to review all of your credit reports – not just one – and assess the level of risk involved in the loan from there.
Much like with CCJs and other kinds of late payments, your ability to get a mortgage with defaults will really depend on how long ago these defaults took place, the types of accounts you owed money to, and when these debts were settled.
Satisfied defaults are considered better than unsatisfied ones, because they are proof that even though you have failed to repay your debts in the past, you have since straightened out your finances. Minor defaults, such as missed phone contract payments, will be taken less seriously than defaults made on mortgage payments or secured loan payments.
Can I get a mortgage if I’m on a debt management plan (DMP)?
Yes – but you will need to be able to prove that you can afford your mortgage repayments on top of any outstanding debts.
If your debt management plan has been in place for some time, and you have been successfully meeting all your payment obligations since it began, many lenders will consider you to be a lower risk candidate, as you have already proven that you have the means to satisfy the plan’s terms. If you have taken out the DMP in the last six months, however, your options may be more limited.
Your case will also depend on what these debts were relating to. For example, if you are on a plan to pay off unsettled store credits, lenders will be likely to look at your situation more favourably than if you are still tackling a credit card overdraft.
Bear in mind that if you are planning to get a mortgage on a debt management plan, your income multiples may be affected – and it’s these multiples that ultimately determine how much you can borrow. Somebody with a clean credit file and no DMP may be able to obtain up to five times their income, whereas an individual on a DMP may only be offered four times this total.
You may also find that you need to enter into a mortgage deal with higher interest rates, and/or you need to put down a higher deposit to satisfy the lender’s risk mitigation criteria.
Will an IVA affect my mortgaging prospects?
Some lenders will automatically decline an application from anyone who has ever had an individual voluntary agreement (IVA) in place. This is because a history of being on this kind of debt repayment plan indicates that the person has struggled with their financial commitments in the past.
But if you have (or have had) an IVA, don’t despair. A growing number of lenders are accepting applications from those who want to mortgage or remortgage with an IVA on their credit file. These companies will investigate your credit issues and assess them according to their frequency and severity.
If you can, wait until you have either finished paying the IVA off or it has dropped from your file before approaching a lender for a loan. (It normally takes 6 years for an IVA to disappear.) Doing so will improve your credit profile and give you access to much better IVA mortgage deals.
If this isn’t possible, and you’re keen to make a purchase or remortgage your existing home while the IVA is still present, contact our brokers to discuss your circumstances in more detail and they will connect you with providers who may be able to help.
Can I get a mortgage if I’ve been declared bankrupt or am currently bankrupt?
If you have been made bankrupt in the past 6 years and are either struggling to get a mortgage or worried that you might not be accepted, there are post-bankruptcy mortgage options available and we can help!
If you have been discharged for at least 12 months, there could be available lenders that are willing to look at your options, your interest rate may be slightly higher initially, as mortgage lenders will consider you a higher risk. However, if you keep up your repayments, your credit rating should improve and should enable you to remortgage to a standard mortgage with a lower rate after a few years.
Can I remortgage my home with bad credit?
It is certainly possible to switch to another mortgage deal at the end of your current term if you have a history of adverse credit. You will be able to access a better range of deals if you can settle as many of your outstanding debts as possible before your mortgage is up for renewal, and if you can prove that you have stayed on top of your mortgage repayments to date (with no exceptions).
If you’re concerned that your bad credit history may affect your remortgaging prospects – or you are worried that having little to no credit activity might hinder your chances of securing good terms – speak to the team here at CLS Money well before your existing term is due to end. We have helped many applicants find suitable remortgaging options even when there is evidence of defaults, CCJS, IVAs and other marks on their credit files.
What kinds of specialist mortgages could I get with adverse credit?
Depending on your circumstances, you may need your broker to look at a more niche mortgage arrangement. Requiring a complex mortgage may narrow your chances of being able to get a deal – but because there are more lenders in the market who are specialising in adverse credit mortgages, it’s always worth checking to see what kinds of products are out there before giving up on your dream of owning your own property.
Banks and building societies often deem expatriates to be higher risk, even if they have an acceptable credit status. Add into the mix that it is often trickier to trace the credit history of people who have lived abroad for some time, and you can understand why more mainstream lenders may not want to offer a mortgage to someone in these circumstances. However, there are specialist mortgage providers out there who are willing to assess mortgages for expats on a case by case basis – and these are the kinds of companies you need to approach if you are an expat with a history of poor credit.
Bear in mind that if you are looking to purchase a property in another country, the information here may not apply, as you will need to satisfy the eligibility criteria of international agencies.
Second home mortgages
You may think that, if you have a history of adverse credit, you will automatically be refused a mortgage for a second home. But because the lender can use your first property as collateral, they may be more inclined to offer you a deal. As with any mortgage application, the key question is this: when all of your outgoings, debts and other mortgage repayments are taken into consideration, will you be able to afford to pay back what you owe on your second property? If the answer is no, we would recommend settling some of your debts before considering another large-scale purchase.
As well as taking your credit score into consideration, lenders may calculate your debt-to-income (DTI) ratio to see if the monthly payments will be within your means. If your total debts are less than a predetermined percentage of your income, you may be eligible for a loan. A debt-to-income ratio of less than 40% is much more favourable, so try to aim for this wherever possible to maximise your chances of getting a second home mortgage with bad credit.
Large home loans
It’s not impossible to borrow a larger amount of money if you have a history of adverse credit – but it certainly can be challenging to find a lender willing to release these kinds of funds.
If you are looking to secure a much larger loan, we would highly recommend getting in touch with our mortgage brokers for specialist advice. They will be able to search the whole of the market to find lenders who have looser eligibility criteria and who are willing to look at your individual circumstances.
How can I increase my chances of getting a mortgage if I’ve got a poor credit history?
Follow these steps, and you will be able to approach potential adverse credit mortgage lenders with a much stronger case.
1. Get hold of your existing credit reports
Forewarned is forearmed, as they say. Before you even think about looking for mortgage deals, find copies of your current credit reports to see which credit issues are still showing up, and which have already dropped.
Lenders will usually source reports from the three main credit agencies – Experian, Equifax and TransUnion – which will each contain information on your previous loans, credit card bills, overdrafts and utility accounts. To access your free credit reports click here. (Try it FREE for 30 days, then £14.99 a month - cancel anytime)
Remember, each of these reports may display slightly different information. If you spot something on any of them that you believe is incorrect, contact the credit provider to ask them to update their records, or ask the agency themselves to look into the problem.
2. Optimise your credit rating
In the 6 to 12 months leading up to your mortgage application – or longer, if possible – try to settle as many of your outstanding accounts as you can. This will make you much more attractive to lenders, as it will prove you are serious about getting your financial affairs in order. Plus, paying off as many debts as possible will ultimately lower your debt-to-income ratio and free up more monthly capital that you will be able to put towards your mortgage repayments.
Want another top tip? Make sure you’re registered on the electoral roll with the address that will eventually be on your mortgage application. This gives lenders proof of your residency.
3. Raise as much deposit as you can
Mortgage lenders are much more likely to consider your application for an adverse credit mortgage if you are able to provide a higher deposit upfront. We appreciate that it can be difficult to grow your savings pot if you are still grappling with unpaid debts – but the more you can put towards your purchase, the better. If you want to be able to access the most competitive interest rates, aim for between 15% and 25% of the purchase price.
4. Avoid making multiple mortgage applications in a short period of time
Every time you make a credit application online, or make a request to a mainstream bank for a credit loan, potentially a ‘hard’ search could be left on your file.
Hard credit searches and rejected applications may signal to other potential lenders that you are seeking additional finance, or you are having trouble securing finance. So, when you’re enquiring about your mortgage, obtain a credit report first to provide to your mortgage advisor, they will then be able to find out which lenders could potentially accept your application, without going through the guess works with multiple lenders.
If we can see that hard credit searches will drastically impact your mortgage application, we will apply to lenders who offer soft searches. These will not be visible to other companies but will still give you a good idea of what you can borrow and how likely you are to be accepted.
5. Seek advice from a specialist adverse credit mortgage advisor
There really is no substitute for professional advice from a bad credit mortgage broker with in-depth knowledge of what’s on offer from different lenders. Speak to a member of our team today
By working with an advisor who has access to the whole of the market, your search for the ideal mortgage deal won’t be limited to the products on offer from mainstream banks and building societies, which will be likely to be out of your reach anyway due to your questionable credit history.
Instead, you’ll be able to source direct deals from mortgage providers who are known to be kinder to people with bad credit. What’s more, your broker will be able to suggest ways to strengthen your application so you can access the best possible deals.
For more information on how to improve your credit score, check out our latest video.
Your adverse credit mortgage checklist
Want to purchase a new property, but worried that your poor credit history will be held against you when it comes to how much you can borrow? Here’s what you need to do to attract better terms from a lender that is willing to consider your case:
- Speak to a member of our team. We have lots of experience in securing mortgages for people with bad credit
- Download copies of your credit files, and make sure all the information on them is accurate and up to date
- Take steps to optimise your credit score
- Clear as many of your debts as you possibly can before applying for a mortgage
- Save a larger deposit to increase your options
At CLS Money, we specialise in securing home loans for people with adverse credit.
We know that, if you have a history of bad credit, securing the right mortgage can feel like a daunting task. There’s so much to consider, especially when it comes to taking the right steps to maintain a better credit score and prove to lenders that you’re a responsible borrower.
Our specialist bad credit mortgage broker understands the obstacles you’re facing. But perhaps more importantly, they have the knowledge, the experience and the contacts to greatly improve your chances of finding a mortgage that will support your longer term goals.
We have access to the whole of the market, which means we can source mortgage offers from niche lenders with more flexible eligibility criteria than many of the High Street banks. We also have an innate understanding of what these specialist lenders are looking for, and we’ll be able to help you optimise your application to give you the best possible chance of success. Whatever your situation or bad credit history, CLS can find a solution.
You will also get access to our CLS portal, which allows you to quickly and conveniently upload any documents that support your case, as well as stay up to date with the progress of your application.
Contact us today to book your free, no-obligation consultation at a time that suits you. Evening and weekend appointments are available.