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Poor Credit Mortgages – Your Guide to Getting a Mortgage If You Have Low Credit

Posted 16 April 2018 by Nick Parkhouse

Looking for a mortgage with low credit? Read our essential guide to getting a mortgage with an adverse credit rating...

According to figures from The Money Charity, 276 Brits are declared insolvent or bankrupt every day, and more than 8,000 County Court Judgments (CCJs) are issued every week.

Considering that people in the UK owe more than £1.5tn in debt, it’s perhaps no surprise that there are millions of people out there with a less than perfect credit rating.

If you have encountered credit problems in the past, then you may think that there’s no point in applying for a mortgage. However, that’s not always the case and there are steps you can take to help yourself. Keep reading for our full guide to getting a mortgage with bad credit.

Why you may have a poor credit rating

You don’t have to have a CCJ or have been declared bankrupt to get a bad credit rating. There are lots of reasons why your credit file may not look as good as it could. These include:

  • you have a CCJ registered against you
  • you have been made bankrupt
  • you’re in an agreement to repay debts, for example an Individual Voluntary Arrangement (IVA) or Debt Management Plan (DMP)
  • you have missed payments on debts such as loans or credit cards
  • you have made late payments on cards or loans
  • you are in arrears on your mortgage
  • you’re not registered on the electoral roll at your address
  • you have never had any credit in the past and there is simply no record of you.

Check your credit rating before you apply for a mortgage

If you’re thinking of applying for a home loan it is a good idea to obtain a copy of your credit file first. You can request a copy of your credit file from one of the UK’s three credit reference agencies: Experian, Equifax and Callcredit.

Your credit file will show you how you have managed your debt in the past. It gives you the opportunity to review the information that a lender will find, and to correct any mistakes that may be on your account.

Find out more about this process.

Can I get a mortgage with bad credit?

If your credit report shows that you do have adverse credit – perhaps you have missed payments on your loans or credit cards or you have a default – then it may still be possible for you to get the mortgage you need.

Your chances will generally depend on:

  • the severity of your credit problems
  • how long ago your problems occurred
  • which lenders you approach.

If you have a recent CCJ or you are in arrears on your credit cards or loans right now, it may be tough for you to get the home loan you need.

However, if you have a very minor issue that happened a few years ago, you’re much more likely to be successful.

Some High Street banks use an automated underwriting system and so any credit problems may mean your application is refused. Other lenders will look at cases on an individual basis and if you can provide a satisfactory explanation for small credit issues then an underwriter may be prepared to agree your mortgage, if everything else fits their criteria.

Depending on your specific credit issue, you may have to put down a large deposit than other borrowers. You may also pay a higher interest rate to reflect the added risk the lender is taking.

Speaking to an independent mortgage broker can help you to find the right deal for you. A broker may be able to approach smaller, specialist lenders who will accept applicants with a less than perfect credit rating.

Improving your credit score can help you to get the mortgage that you need

One of the quirks of the credit scoring process is that you can sometimes struggle to get a mortgage if you have never borrowed or taken any credit. If you have never had a loan or credit card, you may not have built up a credit score because you haven’t evidenced that you can manage credit responsibly.

One way to improve your credit score is to take out a credit card or a small amount of credit. By paying it back on time every month you can demonstrate that you are capable of managing credit.

If you do already have credit, then it can help your mortgage chances if you are able to reduce the amount of debt that you have. Lenders want to be sure that you can afford the mortgage now and in the future, so reducing your debt in the run-up to making an application can help your chances. Paying down your debt also shows a lender that you don’t rely on cards or loans to survive.

Another way to improve your credit rating is to make sure you’re registered on the electoral roll. If a lender can’t find you on the electoral register than this can damage your application as they won’t be able to see how you’ve managed credit in the past. Getting on the register is easy – just talk to your local council to do this.

Finally, if your credit is linked to a second person and you’re no longer in a relationship with that person – maybe you held a joint account – let the credit reference agencies know. Another party defaulting on debt or making late payments can affect your credit rating, so make sure you update your details.

Read our guide for more advice on improving your credit score to help you get a mortgage.

Don’t forget to remortgage when your credit improves

If you take out a bad credit mortgage with a specialist lender, the chances are that you may pay a higher interest rate. If you manage your mortgage well, over time your credit rating is likely to improve. Paying a mortgage for a few years may also mean that you build up some equity in your home.

These factors combined mean that, in the future, it may be possible for you to remortgage with a High Street lender. If you pass the credit score and can demonstrate affordability you may be able to take advantage of a lower fixed or tracker interest rate – although there may be fees to pay for switching.

Again, speaking to an independent mortgage broker can help you to find the right deal for you.

 

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