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A bad credit history doesn’t have to equal mortgage rejection. Bad credit mortgages are designed to help people with a poor credit rating buy a house or remortgage. We look at what they are, how to you get one and what you need to watch out for.
Bad credit mortgages are aimed at borrowers with a poor credit history and rating. Some lenders specialise in offering these mortgages although they typically have higher interest rates and fees. Bad credit mortgages may also require a bigger deposit than you would need for mainstream mortgages.
Bad credit mortgages are also known as adverse credit mortgages or sub-prime mortgages.
Having bad credit doesn’t mean you can’t get a mortgage. But it’s important to get expert mortgage advice first to make sure you apply to the right lender. If your credit issues are fairly minor and happened a few years ago, a mainstream lender may lend to you. But if your situation is more complex, you may need to go to a specialist bad credit mortgages lender.
Using the right specialist mortgage broker is crucial. Our partners at Chartwell Funding will check whether a High Street lender is the best option for you first. Whereas some specialist mortgage brokers will only look at impaired credit lenders – this could mean you have to pay a higher mortgage rate.
If you have already applied for a mortgage and been rejected, stop. Numerous failed mortgage applications will damage your already poor credit history and reduce your chances of ever being approved. So don’t take any further action until you’ve taken advice.
You can find out if you have bad credit by requesting your credit reports from the three main credit referencing agencies: Experian, Equifax and TransUnion.
Factors that can harm your credit rating include if you have:
Whether or not you have bad credit matters when you apply for a mortgage because the lender will check your credit report to see if you are likely to be a reliable borrower. What’s contained in your credit reports will be a factor not just in whether your application will be accepted but also in how much you can borrow and the rate you’ll pay.
When applying for bad credit mortgages, you’ll have to supply everything you would need to if you were making a standard mortgage application including:
Read our guide How to make a successful mortgage application to find out more. But with bad credit mortgages, the lender will also usually want to see more evidence of your finances. And the process of getting bad credit mortgages usually takes longer.
It is possible to get 95% bad credit mortgages with a 5% deposit. But if you have a 10% deposit, the number of lenders offering these types of mortgages increases the criteria relaxes. Mark Searle from Chartwell Funding explains, ‘Lender’s products are based on a tiering system, where you can cascade up and down depending on the level of bad credit. The more recent and serious the credit issues the greater the deposit needed, and it will also result in higher mortgage rates being offered..’
To have the widest choice of bad credit mortgage lenders you’ll need a deposit of 25%-30%.
There are steps you can take to boost your chances of your mortgage with bad credit application being accepted. These are:
Bad credit mortgage broker fees vary hugely. Our partners at Chartwell Funding charge a £299 fee for impaired credit mortgages, only paid when you get a formal mortgage offer. But some bad credit mortgages brokers charge thousands of pounds. So make sure you don’t pay more than you need to.
Plus, unlike some other bad credit mortgage brokers, Chartwell Funding will always look at mainstream lenders first, which could save you even more money. And if you do need to opt for a specialist lender, Chartwell Funding will build a plan to get you back with a High Street lender and repair your credit over time.
To decide whether or not you should apply for a bad credit mortgage, you’ll need to weigh up the pros and cons. One advantage of applying for a bad credit mortgage means you’ll be able to buy a property now rather than a few years down the line. Hopefully during that time you will build up a chunk of equity in your home.
But on the downside, bad credit mortgages may need a bigger deposit and you might not be able to borrow as much as you would if you didn’t have credit issues. Plus, the rates and fees with bad credit mortgages are usually higher.
To help you decide whether now is the right time, speak to a specialist broker like our partners at Chartwell Funding. They’ll advise you on which lenders are most likely to approve someone in your circumstances and can help you find and arrange a mortgage.
There are a number of ways you can improve your credit score including:
Find out more with our guide: How to improve your credit rating before getting a mortgage.
Getting a mortgage with bad credit if you’re a first time buyer is possible but you may need to use a specialist bad credit mortgages lender. You may need a bigger deposit compared to if you have a perfect credit history. Get tips on how to boost your deposit in our guide How to save for a deposit. Read our guide on Mortgage advice for first time buyers.
Remortgaging with bad credit is possible, although just like if you are getting a mortgage with bad credit, when you remortgage with bad credit, you may need to go with a specialist lender.
So speak to a specialist mortgage broker like our partners Chartwell Funding. They’ll consider mainstream lenders first to see if that’s best for you.
Bad credit mortgage rates are usually higher than the best mortgage rates on the market and you may need to pay higher fees too. But the easiest way to find out how much you are likely to pay with bad credit mortgages is to speak to a specialist mortgage broker. They’ll explain the bad credit mortgage rates on the market that you may get access to.
If you’ve been made bankrupt, there are typically lots of mortgage options once you have been discharged for 3 years (assuming everything else is clear). However, if you have a 30% deposit you can look for a mortgage after 12 months and if you have 25% deposit after 2 years. A High Street lender may consider you after three years but many have a flat rule of 6 years since discharge. It’s the same rules for repossessions.
So if you’ve been made bankrupt and are looking for a mortgaging, speak to a specialist broker like Chartwell Funding.
A bad credit history means you’ve had issues in the past that have damaged your credit score, such as missed payments, having a large amount of debt, or even bankruptcy. Whereas no credit history means you haven’t built up a credit rating yet: if you’ve never had credit you don’t have proof that you were responsible borrower.
When you make a joint mortgage application, the credit history of both borrowers will be taken into account. If your partner has bad credit, it’s a good idea to speak to a specialist broker for advice. Read more in our guide Buying a house with a partner: What to watch for.
You’ll find bad credit mortgage calculators online but there are lots of variables with bad credit mortgages and a calculator won’t take these into account. To get up to date and accurate information that’s specific to your circumstances you should speak to a bad credit mortgage broker.
Getting a mortgage with bad credit can be more difficult but having a good income should work in your favour, especially if that means you’ve been able to save a bigger deposit. Again, make sure to speak to a specialist mortgage broker as they’ll look at your situation and explain your options.
More than 15m people have a history of adverse credit in the UK, according to the 2023 Pepper Money Specialist Lending Study.
There isn’t a minimum credit score for a mortgage. But the higher your credit score the more likely your application will be accepted.
Get independent advice, a no-obligation quote and an instant decision with our specialist lending partners at Chartwell Funding. Call them on 01454 809 300 or request a call. Plus, as they’re a specialist lender, they have access to some lenders that other brokers do not. They charge a £299 fee for impaired credit mortgages, only paid when you get a formal mortgage offer. But some bad credit mortgages brokers £1,000s. Plus, unlike some other bad credit mortgage brokers, they’ll always check mainstream lenders first.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
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