Getting a mortgage if you have a poor credit history

Posted 5 February 2016 by Nick Parkhouse

Under new regualtions, having a poor credit rating can hinder your chances of getting a mortgage but you may not be completely scuppered...

In the run-up to the global financial crisis, getting a mortgage if you had a poor credit history was straightforward. 'Sub-prime' lending was commonplace and there were dozens of lenders prepared to agree a mortgage even if you had missed payments, defaults or County Court Judgements (CCJs).

Now, changes to the mortgage market and stricter lending criteria mean that it's much harder to get a mortgage if your credit history is less than perfect. However, it isn't impossible.

Why you may have a poor credit rating

There are a range of reasons why you may have a poor credit rating. These include:

  • Missed payments on credit cards, store cards, mortgages or unsecured loans
  • You are in a debt repayment arrangement such as a DMP or IVA
  • You have defaults or CCJs registered against you
  • You are not registered on the electoral roll at your address

If you think any of these may apply to you it can pay to obtain a copy of your credit record before you apply for a mortgage. You can request a copy of your credit file from one of the UK's three credit reference agencies: Equifax, Experian or Callcredit.

Getting a mortgage if you have a poor credit history

If you have a poor credit history then it may still be possible to get a mortgage but you will find it much harder than someone with no credit issues. If a lender is prepared to agree a mortgage for you, be prepared:

  • To put down a bigger deposit - Most lenders will require a deposit of at least 25 to 30% of the property value, compared to around 5% to 10% if you were applying for a standard mortgage
  • To pay more - lenders generally charge higher interest rates/fees if you have a poor credit history. This is to represent the additional risk they take when lending to you

If you have bad credit it is highly unlikely that you will be able to take advantage of any government backed schemes such as Help to Buy or Shared Ownership.

Making a number of applications to different lenders can adversely affect your credit rating and so speaking to a mortgage broker or advisor can help you to find the right lender for you.

How you can improve your credit rating to get a mortgage

If you are looking to get a mortgage in the future there are a number of steps that you can take in order to improve your credit rating:

  • Make sure you pay all your commitments in full and on time
  • Register on the electoral roll
  • Consider using a credit card on a regular basis and paying it off each month to demonstrate that you can manage credit
  • Correct any mistakes on your credit rating

Doing all of these things is no guarantee that your credit score will have improved enough to be approved for a mortgage but it will certainly help.

Read on to find out what credit score is needed to buy a house...

Craig Hall, Legal & General Mortgage Club
13 July 2017
This week's exclusive Q&A speaks to Legal & General's Craig Hall about choosing a mortgage for new build homes...Read more
Interviews with the Experts
8 March 2017
Experts from across the property industry express their disappointment at a Budget which didn't even mention housing or the building of much-need...Read more
15 January 2016
Government schemes for homebuyers have been a godsend to first-timer buyers, leaving them with a range of mortgage options for their purchase...Read more
Mortgages & Homes

Click here to see your activities