Last Updated on 30th September 2020
‘Bad credit mortgage rates’ is a term used for mortgage rates offered to an applicant who has bad credit. Lenders won’t advertise bad credit mortgage rates. Nonetheless, some lenders will have rates and products available to applicants with bad credit.
Bad credit can have so many variables, so it’s almost impossible for a lender to advertise rates available specifically to you, without assessing your circumstances beforehand. This is why there aren’t any mortgage rates for bad credit which you can find displayed.
The aim of this article is to show you which rates you may be eligible for depending on your circumstances.
Getting the best bad credit mortgage rates
Below is a list of key factors which are likely to impact the rates you’ll be offered (in no particular order).
- Current market rates for general mortgages
- The Bank of England base rate
- Deposit and amount you need to borrow (LTV)
- Amount of credit issues you have
- Type of credit issues you have
- How recent the credit issues were
- If credit issues are settled or still outstanding
- The lenders available to you
- The quality of your mortgage application
We’ll explain exactly how each of these factors can affect the mortgage rates offered to you. We will still refer to them as bad credit mortgage rates. This is because you may not be offered best-buy rates that are open to everyone else.
As a result of you having bad credit, you may only be eligible for mortgages with higher rates and fees. If your credit is really bad, there’s a chance you’ll only qualify with a sub-prime lender. Sub-prime mortgage rates tend to be less desirable than the general mortgage rates on the market.
If you wish to know the exact rates you’ll be eligible for, make an enquiry and an advisor will guide you.
1. Current market rates for mortgages
The aftermath of the credit crunch in 2008 left the mortgage market in a nervous wreck. Some lenders left the market altogether, while others only approved mortgages to applicants with large deposits and squeaky clean credit files.
2014 saw a resurgence of lenders entering the market, which also saw an increase in lenders entering the adverse credit market. As a result, this made the mortgage market competitive once again. A competitive mortgage market is great for borrowers, especially those with bad credit, as the likelihood of getting a mortgage drastically increases. Lenders have since stabilised and with the Bank of England interest rate still considerably low, the mortgage market is flourishing.
How does this affect bad credit mortgage rates?
If you look at current mortgage rates, there are some great products out there. Low fees and great rates prove just how confident lenders are feeling. This confidence has also filtered through to the bad credit market. Bad credit mortgage rates still tend to be quite competitive when compared to previous years.
The newfound confidence in mortgages with bad credit means that borrowers with credit issues such as CCJs and IVAs can still get a mortgage without having to put down extremely large deposits. Furthermore, borrowers with minor adverse credit are often able to get similar mortgage products to those with clean credit. Even borrowers with severe credit issues are still able to gain access to some pretty great mortgage rates.
Which bad credit lender is the best?
When it comes to bad credit mortgages, each individual case is assessed very differently, as no two cases are the same. Bad credit issues can vary so much from CCJs, bankruptcies, repossessions, defaults and a lot more! This is why there isn’t one particular lender that would be the best for everyone. The chances are that there will be a specific lender tailored for you based on your individual circumstances.
This isn’t just the case for applicants with bad credit. Each mortgage case will be different, even those with clean credit. One borrower may be self-employed for example but suited to certain lenders based on their circumstances.
Each lender has its own unique criteria for when they assess a mortgage application. For this reason, it’s vital to establish your lender’s criteria before submitting an application. This is because some lenders will be more likely to decline, with others more likely to give you the green light.
Understanding each lender’s criteria
It’s very difficult for someone who needs a mortgage to check every lender and their criteria. Lenders, unfortunately, don’t make their criteria public. For this reason, borrowers tend to use mortgage brokers in order to find them a great deal.
With adverse credit, a lot of brokers don’t have the knowledge or expertise in this area. Therefore inexperienced brokers can apply to lenders they’re used to dealing with or have a preferential arrangement with. This often results in applications being declined and leaves bad credit borrowers in an even more difficult position. If you’re approved through potluck, the chances are you’ll have a mortgage that isn’t necessarily the best deal available to you.
All of our advisors are specialists in adverse credit mortgages and aren’t tied to any specific lenders. We have access to the whole market and can start matching you to potential lenders today.
2. The Bank of England base rate
The reason the Bank of England base rate affects mortgage rates is that mortgage rates tend to follow it. For example, each lender will have its own rate, in addition to the Bank of England interest rate. You may think that this applies to tracker rates only, but it also applies to fixed-rate mortgage products too.
The reason mortgage rates are currently low is because the Bank of England base rate is low. As mortgage rates are so low, this allows borrowers with bad credit to get a mortgage which is still at a relatively great rate when compared to previous years.
Those with bad credit will often only be offered mortgages with slightly higher rates than regular mortgage products. If credit issues are quite severe, then mortgage rates tend to be higher, hence the term ‘bad credit mortgage rates’.
If the Bank of England interest rate was high, then getting a bad credit mortgage with a great rate would be near enough impossible. Now is a great time to secure a mortgage, especially if you have bad credit. Not only is the Bank of England rate still low, but there’s a lot of confident lenders to choose from.
3. Deposit and the amount you need to borrow (LTV)
The loan to value (LTV) is the size of the mortgage loan compared to the value of the property. If you had a deposit of £20k and the value of the house was a £100k, you’d need an £80k loan. This specific example would indicate that you’d need an 80% LTV mortgage. If you had a £30k deposit, then you’d need a 70% LTV mortgage and so on.
When lenders assess an application, their assessment is based on how much risk lenders are taking. Many lenders will assess the ‘worst-case scenario’ for each application when making their risk assessments. For example, if the borrower defaulted on paying the loan back, what would the lender do? Lenders will try and recoup their loan if it wasn’t paid back, which largely depends on the size of the loan and the value of the property, in other words, the LTV.
Mortgages are secured loans, so the security that lenders have is that they’re securing the loan against the property and its value. 95% LTV products generally carry unattractive rates, whereas 65% LTV products usually have very low rates.
Lenders are in a much stronger position if the borrower has a larger deposit. That’s why applicants with bad credit generally require higher deposits, to minimise their already risky application. In addition, borrowers with bad credit will tend to pay higher rates to again minimise lender risk.
4. Number of credit issues you have
One credit issue will of course make you higher risk when compared to a borrower with no credit issues. Having more than one credit issue will therefore put you at an even higher risk. Multiple credit issues usually mean that getting a mortgage is still very possible, but can prove more difficult than maybe having one or two credit problems.
Borrowers with multiple credit issues generally need to pay higher deposits as well as accept higher interest rates in order to be approved for a mortgage. You can check your credit files to see what’s actually registered on your name.
It’s vital to check all three of the main credit agencies such as Equifax, Call Credit and Experian, as this is exactly what lenders will do. Checking your own credit file won’t harm your credit score or leave a footprint of any kind, but will give you an informed idea of exactly what lenders will see.
5. Type of credit issues you have
The type of credit issues you have will also affect your mortgage rates and chances of approval. In a nutshell, the more severe your credit issues usually mean an increase in mortgage rates.
Less severe credit issues would include having no credit history and a low credit score. Credit issues such as these aren’t a major cause of concern and mortgage rates shouldn’t be affected by much.
If you have adverse credit issues such as late payments, mortgage arrears, defaults and CCJs then credit issues are deemed more severe. That being said, you should still be able to get some pretty competitive rates, especially with a large deposit. If you’ve got a debt management plan (DMP), this can ring some alarm bells but also shows lenders that you’ve got a plan for your debt and you’re facing it head-on, rather than letting debt get the better of you.
The most severe type of credit issue will either be bankruptcy, IVAs or a repossession. It’s still possible to get a mortgage, however the rates offered tend to be higher than the industry average, even with a large deposit. Every case is different, a bankruptcy that took place ten years ago is a lot less severe than multiple CCJs being registered only a month ago, which brings us on to our next point.
6. How recent the credit issues were
The timing of your credit issues and more importantly the official dates they were registered on your credit file, play a huge part in the mortgage rates that’ll be available to you.
Recent credit issues will impact your credibility a lot more than credit issues of the past. Credit issues that you experienced over six years ago, usually result in you being able to obtain the same best buy rates as borrowers with clean credit. This is because credit issues that took place over six years ago usually don’t appear.
We say ‘usually don’t appear’, as some lenders will go back further than six years and will decline particular credit issues no matter how historic they are. For instance, lenders such as Santander will decline any applicant that has ever had a bankruptcy. On the other hand, some lenders may only go back three years.
If you’ve had a CCJ in the past two years and ‘Lender A’ only accepts CCJs three years or more and ‘Lender B’ is a specialist adverse credit lender who will accept CCJs after twelve months, then you’d of course place your application with ‘Lender B’. However ‘Lender C’ may also offer a mortgage and at a much better rate, but you were not aware of ‘Lender C’.
Finding a bad credit mortgage lender
In reality, it’s difficult for the public to know which lenders accept what types of bad credit, let alone that you’re getting the best rate. Expert mortgage advisors should know each lender’s criteria like the back of their hand and pinpoint the best rate with a lender that’s more than likely to approve you.
All of our specialist advisors always work to getting the best bad credit mortgage rates and place applications to the best-suited lenders, subject to your circumstances.
As the market is constantly changing, so are products and rates. Changes are daily and as experts in the field, we’re constantly in the loop. That’s because we’re in contact with lenders and underwriters from day to day placing mortgage applications. Utilising the experience and knowledge of a broker could save you a lot of time and money. Going headfirst into the mortgage market with bad credit is highly unadvised.
7. If credit issues are settled or still outstanding
Settling past debts will certainly have a positive impact on the mortgage rates you may be offered. Certain lenders will point blank refuse borrowers if they still have unsettled debt. Other lenders will still consider mortgage approval even with unsettled debt.
Some specialist adverse credit lenders don’t pay any attention to whether or not your credit issues have been settled. However, this doesn’t mean to say that specialist lenders don’t have criteria. Specialist lenders will usually assess bad credit borrowers on when credit issues were registered and more importantly your financial conduct since. For this reason, debt settlement has no impact on the interest rates offered.
With more severe credit issues such as bankruptcy and repossession, lenders assess if debts have been settled, outstanding or written off, which will impact the mortgage rates available to you.
8. The lenders available to you
Depending on your credit issues, certain lenders may not be available to you. This means that looking at best buy deals and the latest mortgage rates could be a waste of time.
Advertised mortgage rates are generally intended for borrowers with clean credit files. There’s no harm in keeping up to date with current mortgage rates, but when you’re thinking about applying for a mortgage, it’s important to understand that not all rates may be available to you. That doesn’t mean bad credit issues will definitely mean you won’t be eligible for good rates, as it all depends on your individual circumstances.
Generally, high street lenders tend to avoid anything to do with bad credit. The good news is there’s still a lot of lenders who consider borrowers with bad credit. Light bad credit issues such as little credit history or a late payment shouldn’t be enough to deter the majority of lenders from considering you and usually offer very competitive rates. As credit issues become more severe, fewer lenders become available, which can make bad credit mortgage rates less desirable.
9. The quality of your mortgage application
Bad credit isn’t the only thing that can make your application appear high risk to lenders. Clean credit applicants can also struggle to obtain mortgages, as credit checks are only part of a lender’s assessment. You can have the highest possible credit score and still be declined a mortgage, simply because the rest of your application is too weak. Having an overall balance is key in obtaining a mortgage and being offered preferential rates.
Listed below are a few of the main factors that can also impact bad credit mortgage rates:
- Age of applicants
- Outstanding loans (car finance, unsecured loans)
- Address history (stability)
- Registration to the electoral roll
- Debt to income ratio
- Loan to income ratio (affordability)
- Stability of income
- Type of income (self-employed, contracted work, employed)
- % use of available credit
- Repayment type
- Mortgage type
Lenders all have their own specific criteria, so this is not an exhaustive list. There are many other things that could affect mortgage rates available to you when you apply.