Bad credit mortgages are where a mortgage is given to an applicant who has a poor credit history. Our advisors speak to many applicants with bad credit who assume that they’re not eligible for a mortgage due to their credit history.
It’s common to think that you need a squeaky clean credit file to obtain a mortgage. This simply isn’t the case. Over the past 5 years, several lenders have entered the adverse market and specialise in providing bad credit mortgages.
Our advisors specialise in adverse credit mortgages and can possibly obtain you a mortgage, even if you’ve been declined before. Call on 0800 195 0490 or make an enquiry now.Enquire Now
What causes bad credit?
There are a number of factors that can affect your credit score. Factors can affect your credit score both in a positive and negative manner. Positive factors such as keeping a clean credit file for a certain time period may enable you to repair your credit score.
Below are factors which can have a negative impact on your credit score. Despite these factors, our advisors have secured mortgages for people with the following circumstances:
- Missed or late mortgage payments
- Debt management plan
- No credit history
- Debt relief Order
- A high amount of unpaid debt
- Not on the electoral register
Can I get a mortgage with bad credit?
Getting a mortgage with bad credit is possible, but only with the right approach. High street lenders generally hesitate to accept applications where applicants have had bad credit. This can often be due to restricted and rigid protocols that single lenders must adhere to. Many people have contacted us after being declined by a high street lender, only to have our advisors find them a specialist lender and secure them a great mortgage.
Our expert mortgage advisors don’t work with just one lender, instead, they work with the entire market. This opens up a huge amount of options for mortgage applicants. If you have bad credit, it’s vital to speak to a mortgage advisor who is whole of market and specialises in bad credit mortgages, as they’ll know exactly which lender to place your mortgage application with.
If you have bad credit and require a mortgage, below are our top 3 tips to help you!
Speak to an advisor who is whole of market.
This is because advisors who are employed by one lender will only have access to that specific lender’s mortgages. As a result, this drastically reduces the chance of approval. Using brokers that have access to every UK lender, including bad credit lenders is great for when you need a mortgage with bad credit. This is because certain lenders will be better suited than others, depending on your circumstances.
Utilise an advisor that has a deep understanding of mortgages with bad credit.
Not all advisors are able to quickly pinpoint the right lenders. This can result in failed mortgage applications which can further affect your credit rating. Applying to the right lender from the offset is vital in getting your mortgage accepted. Only experienced brokers are able to do this as they have a thorough understanding of lender criteria.
Ensure your advisor fully understands your situation.
Always be completely transparent and honest. Having bad credit is nothing to be embarrassed about. The more open you are with your advisor, the more accurate your application will be. Underwriters will probe your application, especially because of adverse credit issues. If undisclosed credit issues are picked up, then your application will simply be declined.
I have bad credit, how much can I borrow?
Mortgage approval relates to how much risk a lender is willing to take. The amount of risk your application poses directly affects how much you can borrow. We’ll look at the 4 main variables that a lender will consider when assessing your mortgage application.
Loan to Value (LTV)
Loan to value (LTV) is simply how much you are borrowing. For example, the loan is the amount of the mortgage and the value relates to the property value. If a house is valued at £100,000 and you have a deposit of £10,000 then your LTV is 90%. This is because you have a 10% deposit (£10,000) and the other 90% will be mortgaged (£90,000).
Now the loan to value has been explained, it’s clear to see why lenders consider LTV to be a huge factor in assessing an applicants risk when applying for a mortgage. If you have a 95% loan to value for example, although possible, it really does minimise your options. This is because lenders are very restricted when lending up to 95% on a property. This is especially true when lending to a borrower with adverse credit.
How much deposit will I need?
If you have a slightly larger deposit and your loan to value is at least 85%, then you will have a lot more flexibility in the choice of mortgage products available to you. A 15% deposit is quite often referred to as an industry minimum when applying for bad credit mortgages. This is because the lender is taking less risk, as it allows them equity in the case that mortgage payments aren’t met.
If you have a very small deposit, then you may be able to get a Help to Buy mortgage. A Help to Buy: Equity Loan would allow you to get a mortgage even with a 5% deposit. Nonetheless, there are conditions.
Our expert mortgage advisors have secured mortgages for applicants who have had at least a 15% deposit with bad credit, due to multiple CCJ’s, late payments and bankruptcies. That being said, typically a larger deposit will more than likely result in more lenders giving you the green light, as the element of risk is a lot lower.
This is especially true when compared to a borrower with a small deposit (less than 15% of the property value). Even on occasions where an applicant has severe bad credit, lenders are still likely to approve a mortgage but may require a 20-40% deposit. Bear in mind that this would be for a residential mortgage.
If you need a buy to let mortgage with bad credit, you’ll perhaps need a 25% deposit. Aiming for a deposit of 40% should enable you to access some great deals.
Will I need a large income?
Regardless of having bad credit or not, lenders will always assess an applicant’s income. Lenders want to know that mortgage repayments can be covered without difficulty and this is largely based on what the borrower earns.
As an industry-standard, borrowing up to 4 times your annual salary is generally considered the norm. As an example, if you earned £30,000 per year, you could potentially borrow up to £120,000. There are lenders that may lend up to 5x the applicant’s annual income and if you’re a super high earner, you could even borrow more.
Joint mortgages can be useful to cover any affordability issues. However, if one applicant has bad credit, then it can cause problems. Read more about joint mortgages with bad credit here.
The more assets you have as an individual can also minimise your risk factor in the eyes of lenders. This is because savings in the bank, investments or equity in other property, can provide lenders with additional security or collateral. The risk is thought to be less as it shows lenders that the borrower is not dependent on one income stream and has assets as a safety net if needed.
What else should I know about bad credit mortgages?
As discussed, from a lender’s perspective it all relates to the risk involved in approving you a mortgage. Even if you have debt, this is not a big cause for concern. A lot of borrowers will have debt, however this is not necessarily a bad thing. It’s often said, not all debt is bad and you can have ‘good debt’.
If a borrower has a buy to let investment, this can be classed as good debt as the property is generally an appreciating asset. In addition, any monthly rental income is covering the monthly mortgage payment (or at least it should be if done correctly). Having good debt can work in your favour. This is because it shows lenders that you’re able to manage payments on a month to month basis.
Even with a lot of debt and a poor credit score, the right advisor can demonstrate to lenders that the applicant is not high risk, which largely depends on the borrower’s current situation. Our advisors have a wealth of experience in bad credit mortgages and have helped many applicants secure mortgages, even when declined by previous companies due to adverse credit.
Utilise a bad credit mortgage broker to improve your chances of obtaining a mortgage. They’ll not only be able to help you in applying for a mortgage but will also inform you on how to clean your credit file and really get the most from your mortgage.