Last Updated on 19th September 2020
A Help to Buy mortgage may enable you to buy a home with some pretty good perks, but what does it all mean if you have bad credit?
Using Help to Buy with bad credit is more common than you may think. We’ve helped many applicants to qualify that were previously worried due to having a poor credit history. As a result, many creditworthy applicants simply give up on applying for a mortgage without trying.
Our advisors can check if you qualify for a help to buy mortgage and it may well be possible, even with bad credit. This guide will cover everything you need to know but for tailored information, do make an enquiry. Our specialists have helped many applicants with credit issues and even those that have been declined elsewhere.
What is a Help to Buy mortgage?
Help to Buy mortgages are constantly changing. For instance, the Help to Buy: ISA is no longer available to new applicants.
This means that the only Help to Buy schemes currently available are:
- Help to Buy: Equity Loans
- Help to Buy: Shared Ownership
The good news is that both Help to Buy schemes can be used alongside bad credit. This is subject to meeting a lender’s criteria.
Help to Buy: Equity Loans
A Help to Buy: Equity Loan allows eligible buyers to purchase a new-build home with a 5% deposit. The government will then top the deposit up with an equity loan of 20%. If the property is located within Greater London, then you may qualify for an equity loan of up to 40%.
Help to Buy: Equity Loans are interest-free for the first five years which is also a great incentive. It’s also possible to get an equity loan with bad credit, but it can be difficult.
Read more: What is a Help to Buy: Equity Loan?
Using a Help to Buy: Equity Loan with bad credit
Lenders will want to establish any credit issues you have and the date they took place. For instance, credit issues within the last twelve months will make it more difficult to gain mortgage approval. On the other hand, credit issues that took place a number of years ago shouldn’t make a huge impact on your application.
Help to Buy: Shared Ownership
Shared ownership allows you to borrow a share of a property. This is quite useful for when you can’t afford to buy 100% of the property value. The share you can purchase usually ranges from 25% to 75% of the overall property value. You’d then pay rent on the remaining share that you don’t own. The rent is typically paid to a local housing association.
Can you get a Shared Ownership mortgage with bad credit?
Getting a shared ownership mortgage with bad credit depends on the following factors:
- Date of credit problems
- The severity of credit issues
- Affordability (income/outgoings)
- Deposit amount
- The share you want to purchase
Shared ownership with bad credit can be quite simple. This is because you’re able to be flexible on the share you’re purchasing. For instance, certain lenders may enable you to purchase a 75% share of your home, whereas other lenders may only go up to 50%.
The amount of share you can buy in a home typically depends on the amount you can borrow. Each lender calculates mortgage affordability in their own unique way. This is why it’s important to approach only the most suitable lenders. If you approach a lender that isn’t suited to your circumstances, you could be declined.
Learn more: Shared ownership explained.
Help to buy lenders that accept bad credit
Help to Buy is possible with some lenders with the following credit issues:
- Late payments and arrears
- Debt Management Plan (DMP)
Lenders will assess whether or not your mortgage will be affordable and whether or not you’re considered to be high-risk due to having bad credit. Each bad credit issue can affect your application in a different manner, so it’s advised to seek specialist advice before applying.
Mortgage lenders also have different views on bad credit. As a result, some lenders may be better suited than others. For instance, certain lenders may be more relaxed when it comes to having a CCJ, whereas other lenders may be better suited if you have defaults.
Speak to a specialist Help to Buy advisor
Using an advisor can be very beneficial in circumstances that involve bad credit. Our specialists are able to approach lenders based on both your affordability and credit issues. As a result, our advisors can ensure you’re getting the best deal and will only apply with lenders likely to say yes.
Speaking to a specialist can also save you a lot of money over the years. In situations such as shared ownership, you may find a lender that’s willing to give you a larger share of the home you’re buying. There’s a huge difference in owning 25% of your home in comparison to 75%.
There’s absolutely no obligation to speak to one of our industry-leading professionals. You can make an enquiry below and an advisor will call you straight back.