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Bad Credit Mortgage
Luke Platt talks to us about mortgages with bad credit and answers some frequently asked questions.
How does having bad credit affect my ability to get a mortgage?
First of all, having bad credit isn’t the end of the world. It’s likely there for a reason outside of your control. It could be the loss of a job, or you simply forgot to make a payment.
Our role as a broker is to find the positive in all aspects of bad credit, and ultimately get you a new home. Bad credit can potentially reduce your borrowing capabilities and make the repayments higher, as you may be offered a higher interest rate from lenders.
It could also affect your mortgage application and ultimately prevent you from buying that home you love. That said, speak to a mortgage broker – we would look at the case as a whole and work with you to find the best possible route to home ownership.
Are there specific lenders who specialise in mortgages with bad credit?
Yes, quite a few mortgage lenders specialise in bad credit. The purpose of using a broker is to access their knowledge on which specific lender would suit you best. It all depends on your affordability, your outgoings and what sort of bad credit you have. A broker would be able to help and advise you on that.
What is considered bad credit in the UK?
It tends to cover County Court Judgements (CCJs), Individual Voluntary Agreements (IVAs), defaults, Debt Management plans, late payments, Arrangements to Pay or high credit card utilisation.
A few different examples are considered as bad credit when it comes to applying for a mortgage. There isn’t any one in particular that stands out, but they do all have a lasting impact on purchasing a new home.
Using a broker will help you through this by going to lenders that have an appetite to help you, and are not so risk averse when it comes to bad credit.
Provide your credit report to us, and we’ll go through it with you. We take some details around debt values and the dates when things were enforced, and work with you to find the best possible solution.
Can I still get a mortgage if I have had previous bankruptcy or foreclosure?
With bankruptcy and foreclosure, you would have to allow a certain time frame to pass before applying for credit. A broker would look into the effects of these for you and advise you based on your specific situation.
What if I’ve been declined for a mortgage previously with bad credit?
There might be a reason. It could just be that you don’t fit the criteria of that particular lender. That’s why it’s crucial to use a mortgage broker who knows this inside out, and will avoid lenders that have less appetite for certain types of bad credit.
Again, provide your broker with your credit report, explain that you’ve had a decline on mortgage previously, and we will look for the right solution for you.
If I’m a First Time Buyer and have bad credit, will this affect me getting a mortgage?
The short answer is yes, but it’s not the be-all and end-all. If you have bad credit and you’re a First Time Buyer, speak to a broker who has an extensive knowledge of the lender’s appetite for risk. We could make it far easier than trying on your own.
We’ve also recorded an episode on Bad Credit for First Time Buyers [add link] , so you can always listen to that one.
Do I need a larger deposit for a mortgage with bad credit?
Again, this all depends on the lender’s view on the applicant’s credit-worthiness. Some lenders might want between 10% to 15%. It also depends on which lender is used, so speak to a broker for help and advice.
What is the minimum credit score required for a mortgage with bad credit?
Credit score is a big subject. There are so many different credit referencing agencies out there and lots of different free-to-use apps. They all give an indicative number, and the higher that number, the better the likelihood you will get a mortgage.
Certain credit reference agencies might give you a higher score than others. I would suggest using a broker. We will guide you and advise accordingly, but there is no minimum credit score you need. It is all dependent on the lender’s appetite and risk.
Can you remortgage with bad credit? Are there any differences in the process?
There could be a small difference. If you were to have a clean score when you initially took out a five-year fixed mortgage deal, and after the five years your credit score has got slightly worse, it could be difficult to remortgage. It depends on the severity and what’s showing on your credit report.
A mortgage broker will talk through your needs and preferences with regards to your remortgage and explain the options available to you.
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Can I get a Buy to Let mortgage with bad credit?
Again, it’s all about the lender’s appetite towards the adverse credit for that applicant. Residential and Buy to Let are different in many aspects, but when it comes to getting a particular Buy to Let mortgage with bad credit, it’s the same as if you were applying for a residential mortgage.
Lenders just need to look at your credit file and they will come back with their decision. But a mortgage broker would know the lender’s appetite for risk based on your adverse credit and advise you accordingly.
Can you consolidate debt twice?
Yes, it’s possible to consolidate debts onto your mortgage, but it’s important to understand that by doing so, you are effectively paying more overall. The reason is that the debt gets added to your mortgage, and generally mortgages are for 20 years or more.
A five year home improvement loan, for example, could then become a 20 year home improvement loan, which means you’re paying much more interest on that money you borrowed.
I would always suggest only borrowing what you can afford to repay. If, however, debt consolidation is the best option for you and your circumstances, a mortgage broker will discuss this with you and make you aware of any risks in placing further debt onto a mortgage.
Can I use a guarantor for a mortgage with bad credit?
Yes, some lenders offer guarantor mortgages. They are mostly known now as a Joint Borrower Sole Proprietor mortgage. A broker would go through that with you, look at the various lenders that offer this product and discuss the rates available.
It is important to know that whoever the guarantor might be, they usually have to seek independent legal advice. They would be liable for that particular mortgage if you were unable to pay.
A mortgage broker would go through all of this with you, looking at all the options available for your needs and circumstances.
How long do I have to wait after improving my credit score before applying for a mortgage with bad credit?
It can be between three to six months. It could be you’re waiting for an old debt like a default to fall off your credit report. Generally things stay on credit reports for six years, and after that time frame it becomes easier to apply for a mortgage.
Whenever you speak to a broker, they’ll ask you for your credit report. They’ll note down the dates, the values and whether the debt is satisfied. We would then advise you on the best time to reapply, with tips and advice on how to get yourself ready for that stage.
What else do we need to know about bad credit mortgages?
A mortgage broker can help in lots of ways. I like to think of myself as a broker that really gets involved with my clients. I get to know your history, background, family, your lifestyle… Even if you’re not at the stage where you’re looking to buy, we potentially work with you to help you get ready to apply in the future.
The other real tip is that mortgage brokers have direct access to the lenders’ underwriters. We can talk to them about an individual case or have a discussion to potentially assist anybody that’s got bad credit.
So if you’ve got bad credit, having a mortgage broker really helps. Just get in touch – we’re here for the long haul to help you ultimately buy your home.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.