Mortgage with bad credit
One of the most common issues faced by mortgage borrowers over the past 20 or 30 years is having a bad credit rating or score.
It should be absolutely possible to get a mortgage with a lower credit score in most cases but rates may vary. There are certain lenders that are clearly better than others for people with bad credit and it’s often best to get advice from a mortgage specialist.
If you need EXPERT mortgage advice then you can contact our team on 0330 118 8188 or CLICK HERE.
Credit statistics and facts UK
There are three main credit rating agencies in the UK which are Experian, Equifax, and TransUnion.
- Average credit score in the UK: 797 (2021 according to Experian)
- Region with the highest credit score: South of England
- Percentage of UK residents that are unaware of their credit score: 69%
- Age group with the highest credit scores: Over 55s (above 863 on average)
- Average credit score for teenagers: 823
- Average credit score for people in their 20s: 792
- Percentage of UK residents that have missed a credit payment: 43%
- Most common credit scoring system: Experian
- Number of people who have defaulted on a loan: 1 in 8
*Statistics provided by Review42.com
What is considered bad credit?
There are many different types and levels of bad credit that will normally be reflected in a ‘Credit Score’.
Some of the most common types of bad credit are:
- Credit applications (multiple credit searches)
- Little or no credit history
- Missed payments (e.g. Store cards, credit cards, loans, council tax, etc.)
- Defaults (Accumulation of missed payments)
- County Court Judgement (CCJ)
- Individual Voluntary Arrangements (IVAs)
- Debt management plans
- Mortgage arrears
- Bankruptcy
Each different type of credit issue will mean that your chance of getting a mortgage or a lower mortgage rate might change.
Can you get a mortgage with bad credit?
It is highly likely that you will still be able to get a mortgage with an element of bad credit history or a lower credit score.
You might not always be aware of why your credit score is low so you should always check to make sure that it is correct. Every mortgage application will require an up to date credit search that will highlight any issues with bad credit.
Some of the most serious issues for getting a mortgage with bad credit are:
- Missed mortgage payments (within the last 2 or 3 years)
- Bankruptcy
- Payday loans
- Unusually low credit scores
In some situations you might need to apply for a mortgage through a specialist broker and lender for certain levels of bad credit.
Bad credit mortgage lenders
We deal with a number of mortgage lenders that are definitely better for lending to people with bad credit.
Our carefully chosen panel of lenders can cover most eventualities so we should be able to find the right lender for you. Our team has decades of experience in helping people with bad credit to get the best mortgage.
Some of our lenders for bad credit include:
- Accord Mortgages
- Aldermore
- Bluestone
- Kensington
- Paragon
- Precise
- The Mortgage Lender
There are plenty of options for people with bad credit and some of the mainstream lenders may also consider certain applications.
Our team of mortgage experts will search our extensive panel of lenders and deals to find you the best rate and the highest chance of success.
Mortgage broker for bad credit
We are extremely proud of the extensive knowledge and expertise that we can offer in this area particularly.
It is important to us to be able to help guide you through the applications process as quickly and easily as possible. There is a very high chance that we will be able to place your mortgage with one of our lenders and get you the best rates.
Speaking to someone that understands this area of lending and has the right level of expertise is very important. You can very easily waste time by trying to get a mortgage through a bank, building society, or broker without the right level of knowledge to help you.
You should also be aware that applying for multiple mortgages and being declined or refused can have a serious effect on your chance of being accepted.
Mortgage lenders will be able to see whether you have had multiple credit searches recently and will flag as an issue.
How to get a mortgage with bad credit
There are a few ways to go about getting a mortgage with bad credit and the best route for you will depend on how low your credit score is.
If we consider that your credit score might be graded from mildly poor to very poor and then consider each option. There is a chance that people with a few small issues on their credit history, still might have no issue getting a standard mortgage.
Timing can also be a factor as we have seen recently during the pandemic and the tightening of lending criteria due to economic uncertainty.
Some of the main options that you might want to consider are:
- Mortgage advisor or broker – you can speak to a normal mortgage advisor or broker about getting a bad credit mortgage. It’s important to deal with an advisor with experience in this area and you should definitely check what fees they charge for this type of transaction
- Apply for a mortgage online – this can be risky for people with bad credit because the chance of being declined or refused is considerably higher. You might find that you are accepted initially from your enquiry but then you might be turned down further down the line when a credit search is completed
- Speak to your bank or building society – it is still possible to get a mortgage through your bank or building society with low levels of bad credit. Some banks are still happy to lend if your credit score is still relatively good with only a few minor indiscretions. Again, the chance for being declined is quite high and especially if your credit score is low or your credit problems are serious
What is a bad credit mortgage?
A bad credit mortgage is just a term that is used to describe a type of mortgage or mortgage deal. There is actually no such thing as a bad credit mortgage in reality and the actual product is the same as any other mortgage.
The term ‘bad credit mortgage’ is used to describe a group of products or lenders that are more suitable for people with credit history problems. It’s not necessarily a problem to have bad credit when you apply for a mortgage and you shouldn’t worry too much about getting a mortgage, especially if your credit is relatively OK.
What is the difference between a good credit and a bad credit mortgage?
There are a few differences between applying for a mortgage with good credit and applying for a mortgage with poor credit.
Some of the most common differences are:
- Choice and options – you will often have less choice of lenders and deals if you have bad credit and especially with the high street lenders
- Rates – more often than not your rates will be higher than the rates being quoted for good credit borrowers, similar to loans and credit cards
- Fees and charges – it is also possible that you could pay higher mortgage fees and broker fees when arranging a bad credit mortgage
- Loan to value (LTV) – you are likely to need a larger deposit or more equity in your property (if remortgaging) to get a bad credit mortgage, especially for heavy adverse or serious credit issues
You should definitely speak to an expert or specialist like us to get the best rates and highest chance of success in this situation.
Apply for a mortgage online with bad credit
There are an increasing number of lenders and brokers that are offering mortgages to people online.
While it might seem like a good way to get a mortgage because of the convenience of it and potential for less hassle, this is not a great option for people with bad credit yet. Technology is developing all the so there may be a point in the future where you could apply for a mortgage online with bad credit, but that isn’t available currently.
You are far more likely to experience problems and to get declined if you apply for a mortgage online with bad credit.
Shared ownership mortgages bad credit
It can be difficult to get yourself on the housing ladder and especially in recent times where the cost of living is so high.
The government have made a number of schemes available to people to help them to be a part of the housing market in the UK. The shared ownership scheme is one of the most popular government initiatives to help people to buy a home.
It is still very possible to get a shared ownership mortgage with bad credit so you should still consider this option.
You might find that you will have less choice and more hoops to jump through because lenders might be slightly more reluctant to lend to people with bad credit. You should speak to an advisor with experience in shared ownership and bad credit mortgages to give you the highest chance of success.
Shared ownership schemes and mortgages are often available to a wide range of people which includes those with bad credit. It is likely that most people will have some sort of credit issues in the past so this is not uncommon for mortgage applications.
No deposit bad credit mortgage
It is a myth that 100% or no deposit mortgages still exist in the UK and unfortunately you will need a minimum of 5% deposit or equity.
There are other options that are available that can assist you with a deposit or to get yourself on the ladder. People with a small or no deposit can also consider some schemes that might be available to them, such as:
- Guarantor mortgages (gifted deposits or mortgage with a relative)
- Help to buy
- Shared ownership
Bad credit mortgage interest rates
When you apply for any form of credit with a history of poor credit, it is likely that you will have to pay a higher rate.
This is simply because you would be perceived to be a slightly higher risk at that time and your rate will reflect that. You might be able to reduce your rate the next time you take a mortgage or remortgage if you are able to improve your credit score.
Bad credit mortgage interest rates will often be slightly higher than good credit mortgage rates, depending on your circumstances.
It is likely that your interest rate will reflect the level of adverse credit that you have and that can also vary dramatically. Someone with more serious credit issues (e.g. mortgage arrears, bankruptcy, or CCJs) might pay significantly more.
95 mortgages for first time buyers with bad credit
One of the biggest issues with buying your first home is being able to raise a deposit and paying fees as a first time buyer.
Hence the reason that first time buyers have access to more lower deposit deals such as 95% mortgages. This simply means that you would only need to raise 5% of the value of your property to purchase.
It is still possible that you might be able to get a 95% mortgage with bad credit as a first time buyer in some circumstances. You will find that your options are more limited and that you might need to pay slightly higher interest rates.
You should speak to an expert that has experience in dealing with this type of situation to get the best rates and highest chance of success.
For more information on securing a 95% mortgage for first time buyers CLICK HERE.
What checks will lenders do for bad credit mortgages?
Every mortgage application will go through the same or a very similar process to get approved.
If you have bad credit and you are applying for a mortgage, then you’ll still have the same process of credit checking and eligibility.
The main checks that your lender will carry out will include:
- Income
- Expenditure
- Affordability
- Property valuation
- Credit report searches
- ID verification
The main difference that you will find is that the search of your credit file will be more complicated than for someone with a good or perfect credit score.
Useful resources
Financial Conduct Authority (FCA) – Mortgage lending statistics June 2022
finder.com – UK credit card usage statistics
Bank of England – Money and Credit June 2022
Office for National Statistics (ONS) – Uk spending on credit and debit cards