A Complete Guide to Bad Credit Mortgages

Welcome to our guide to bad credit mortgages. If you're seeking a mortgage but are concerned that your credit history may be a barrier, you've come to the right place.

Can you get a mortgage with bad credit?

Yes, it is possible to get a mortgage with bad credit, though it can be more challenging, especially with high street lenders who typically favour applicants with clean credit histories. Your chances of approval will depend on several factors:

• Severity of your bad credit: Minor issues, like a single late payment, are often easier for lenders to overlook. However, more serious problems, such as bankruptcy or repossession, can significantly affect your application.

• Age of the credit issue: The older the credit problems, the less of a concern they are for lenders. As time passes, more favourable rates and deals may become available. Even severe issues like bankruptcies or County Court Judgments (CCJs) disappear from your credit report after 6-7 years.

• Reason for the credit issue: Lenders may be more understanding if the bad credit was caused by unforeseen circumstances, such as redundancy, compared to ongoing financial mismanagement. Explaining the context can help improve your chances.

By understanding these factors, you can better assess your options and improve your likelihood of securing a mortgage.

How bad credit mortgages work

Bad credit mortgages are designed for borrowers with poor credit, providing an opportunity to secure home finance despite being less qualified than those with clean credit. These mortgages are generally offered by specialist lenders, though some high street banks also cater to this market.

The key differences between a bad credit mortgage and standard home finance are higher interest rates and the requirement for a larger deposit. This compensates for the increased risk the lender assumes when offering finance to someone with a poor credit history.

Due to the higher risk involved, these mortgages undergo more thorough underwriter scrutiny, which can result in a longer approval process.

What do mortgage lenders class as bad credit?

There is no strict definition of what constitutes ‘bad credit,’ but certain issues on your credit file may cause mortgage providers to hesitate, offer less favourable terms, or require a larger deposit.

The types of credit problems that lenders will accept can vary across the market. Below is an overview of the adverse credit issues that can affect a mortgage application:

How to check whether you have bad credit

Before applying for a mortgage, it’s important to review your credit reports to see what lenders will assess. You may discover bad credit you weren’t aware of, or need to evaluate the current status of any known credit issues.

You can check your credit files for free by signing up for a trial with services like Checkmyfile. Once you have your report, carefully examine the details. Challenge any inaccuracies and request the removal of outdated information to improve your credit profile.

Bad credit mortgage rates

Bad credit mortgages typically come with higher interest rates than standard mortgages. For borrowers with adverse credit, rates can range from half a percentage point to two full percentage points higher than those offered to individuals with a clean credit history. The exact rate you receive will depend on several factors:

• The type of bad credit on your record
• How long the credit issue has been present
• The size of the deposit you can provide

Available mortgage lenders

Bad credit mortgages are typically offered by specialist mortgage lenders who understand the unique needs of individuals with poor credit and design their products accordingly. However, some mainstream mortgage lenders on the high street also provide options for borrowers with bad credit.

This is just a snapshot of the mortgage lenders operating in the bad credit sector. Specialist providers often offer a broader range of deals for customers with adverse credit and tend to be more flexible. However, it is important to note that approaching a lender directly is not recommended. Seeking advice from a broker or advisor can help you find the best deal tailored to your situation.

Check your eligibility

Whether you qualify for a bad credit mortgage depends largely on the age, severity, and reason for your credit issues. However, you must still meet the lender’s general eligibility criteria, which are often more stringent when poor credit is involved.

Here are the main factors lenders will evaluate after reviewing your credit history:

• Deposit amount: Bad credit mortgages typically require higher deposits than standard mortgages. The required deposit amount can vary based on your specific credit situation, but lenders generally expect around 15-20% of the property’s value.

• Age: Most lenders have a maximum age limit of 75 for applicants, though some extend this to 85, and others may have no upper limit as long as they are confident you can manage repayments into retirement. Age limits are generally similar for bad credit and mainstream residential mortgages.

• Property type: Buying a non-standard property—one that is not built from traditional bricks and mortar or has unusual features—can complicate the mortgage process, especially if you have bad credit. Specialist advice may be needed to secure approval.

• Income type: Lenders often prefer borrowers with stable, full-time employment. If you have bad credit and earn income from self-employment or non-traditional sources like royalties or investments, you may require specialist advice to navigate the mortgage process.

How to get a mortgage with bad credit

Follow the steps below to get started with your bad credit mortgage application, increase the likelihood of approval and boost your chances of securing a favourable deal:

Download your credit reports: It's essential to understand the state of your credit reports before applying for a bad credit mortgage. Review how long your credit issues have been listed and check for any errors or inaccuracies, which can be corrected or removed upon request. This will give you a clearer picture of your credit profile and help you prepare for the application process.

Build credit where possible: There are straightforward steps you can take to improve your credit score before applying for a mortgage. Ensure you are listed on the electoral register, pay all bills and credit commitments on time, and clear any debts that you can manage. These quick fixes can significantly enhance your credit profile and improve your chances of securing a mortgage.

Speak to a mortgage broker: A specialised mortgage advisor can greatly improve your chances of success. They’ll assist you in securing the best rate and provide guidance throughout the entire application process, making it easier to navigate the complexities of bad credit mortgages.

How much you could borrow

Having bad credit won’t directly affect the amount you can borrow, as lenders primarily base this on your income and outgoings. Most mortgage providers cap borrowing at 4.5 times your salary, though some may offer higher income multiples in certain situations.

Mortgages of 5 to 5.5 times salary are common, and a few lenders may extend this to 6 times income under specific conditions, often for professionals in fields such as medicine or law. However, accessing higher income multiples can be more challenging with bad credit, as your options may be limited.

Pros and cons of bad credit mortgages

The table below provides a quick overview of the advantages and disadvantages of bad credit mortgages, giving you a snapshot of their key pros and cons:

It’s worth noting that higher interest rates and deposit requirements may not apply if you work with a specialist broker. Depending on the overall strength of your application, a skilled advisor could help you secure a competitive deal, potentially with similar repayments to those available on the high street for customers with good credit.

Will adverse credit stop you from remortgaging?

Not necessarily. While remortgaging with bad credit can be more challenging, it is possible with the right lender, and a competitive deal isn't out of reach, especially if you've built up substantial equity since your original mortgage.

If your bad credit involves ongoing debt payments, you might also have the option to consolidate those debts into your mortgage when refinancing.

Getting a buy-to-let mortgage with bad credit

Bad credit buy-to-let mortgages are available, though they can be harder to secure, similar to residential mortgages. Lenders will evaluate your credit history, considering the age, severity, and reason for any adverse credit.

Other factors also play a role in eligibility. For example, some lenders may be more inclined to offer buy-to-let finance if you have prior experience as a landlord.

Interest rates and deposit requirements for bad credit buy-to-let mortgages are generally higher than for residential mortgages. Buy-to-let mortgage rates are usually about one percentage point higher than residential rates, and deposit requirements typically begin at 25-30%.

Lenders offering buy-to-let mortgages to borrowers with bad credit include:

• TSB
• Shawbrook Bank
• Leeds Building Society
• HSBC

Options for first-time buyers

It can be more challenging for first-time buyers with poor credit to secure a mortgage, but there are often additional options available to help. These include government schemes, family support mortgages, and specialist lenders that cater to borrowers with bad credit. These alternatives can improve your chances of getting on the property ladder despite your credit history.

Frequently Asked Questions