Bad credit mortgages

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.

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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 bad credit mortgages for people with the following circumstances.

Missed or late mortgage payments
Bankruptcy
No credit history
CCJ’s
Defaults

A high amount of unpaid debt
Repossession
Debt management plan
IVA’s
Not on the electoral register

How can I get a mortgage with bad credit?

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!

  1. Ensure you are speaking to an advisor who is whole of market. This is because advisors who are employed by one lender, only have that specific lender’s mortgage products to provide, which drastically limits the chance of approval for bad credit mortgages.
  2. Ensure your advisors have a wealth of experience in bad credit mortgages. 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.
  3. Ensure your advisor fully understands your situation and always be completely transparent and honest. Having bad credit is nothing to be embarrassed about.

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I have bad credit, how much can I borrow?

Being approved a bad credit mortgage is all to do with how much risk a lender is willing to place on themselves by providing you with a mortgage. The risk factor directly affects how much you can borrow, so we’ll look at the 4 main variables that a lender will take into consideration when processing your mortgage application.

Loan to Value (LTV)

Loan to value or 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 there is a house that is valued at £100,000 and you have a deposit of £10,000 then your LTV is 90%, as 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.

Deposit

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 were not paid.

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 risk element 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.

Applicant’s 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 by the borrower 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 out there that will lend up to 5 times the applicants annual income and if you’re a super high earner, you could even borrow more.

Personal assets

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 bad debt and a bad credit report, 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.

To improve your chances of obtaining an adverse credit mortgage, be sure to utilise a bad credit mortgage broker. 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.