Bad Credit Mortgages
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Bad credit doesn’t make a bad person. If you’ve had a few problems with credit in the past that have left you with a poor credit rating or a low credit score, there may be more options available to you than you think. We are specialist mortgage brokers and we work with lenders that specialise in providing bad credit mortgages. If you have had any of the following in the past, it does not mean the door is closed to you for a mortgage.
- Missed or late payments
- Low credit score
- Debt management plans
- Pay day loans
Specialist mortgage brokers are needed for specialist situations
We know life can sometimes throw us a few curve balls. For this reason, we want to help people with poor credit get back on track. People often assume that because they have had some defaults or a CCJ that they will not be able to get a mortgage. This is simply not true. Can a person with bad credit get a mortgage? Absolutely.
As we are ‘whole of market’ mortgage advisors, it means that we get to work with a variety of specialist lenders. Some of whom are regarded as the go to lenders if you need a mortgage with poor credit. As a result, it’s no doubt reassuring to know we’ve helped lots of people in these situations. And because we have helped so many people get a mortgage with poor credit, it means we know exactly what to do to give you the best chance of getting the mortgage you need.
Can I get a mortgage based on my latest years accounts?
As businesses grow, your own income is likely to increase. It’s quite common that mortgage lenders will want to take an average of your last 2 or even 3 years income as a self-employed person. However, there are a number of lenders that will use your most recent years accounts to assess mortgage affordability. In fact some will even use an accountants projection for the coming year.
Frequently asked questions about mortgage with bad credit
Bad credit is a terminology used when a person has experienced problems with credit in the past. Examples of this could be late payments, defaults or CCJ etc. That type of behaviour would typically result in a low credit score. Having bad credit makes it more difficult to get a mortgage. Because of this consulting an expert broker is strongly advised.
Your credit score is a rating that you get given by the credit reference agencies. Credit score typically ranges between 0-999 depending on the credit reference agency. A low credit score is not good. Whilst a high credit score is good.
There can be many reasons why your credit score might not be so good. However, poor credit behaviour will almost certainly result in a low credit score.
There are 3 primary credit reference agencies in the UK – Experian, Equifax, and TransUnion. Mortgage lenders use these agencies to carry out a credit check when you apply for a mortgage. The information held by each credit reference agency is often different. For this reason some mortgage lenders may refer to more than one agency.
It’s important to understand that the scoring system is different for each agency:
- Experian score out of 999
- Equifax score out of 710
- TransUnion score out of 710
There are other services online that use these main credit agencies to power their services. Such as Clear Score, which is powered by Equifax, and Credit Karma, which is powered by TransUnion. With these 3rd party services, you will find different scoring systems again. Although these 3rd parties tend to be free to use, they are not a reliable score when it comes to mortgages.
It is not just about your credit score. This is why it is important to not only see the score, but also view the full credit report.
You can register with any of the credit reference agencies online and have visibility of your full credit report. A credit report shows a full breakdown of the credit facilities that are registered in your name – loans, credit cards, store cards, car finance, furniture finance etc. This shows clearly how much you owe, who the lender is, and what your monthly payments are. More importantly it will reveal if you have ever had any late payments, defaulted on any agreements, and if you have any county court judgements. Additionally, it will also show any financial associates which can also cause problems if you are financially linked to a person with poor credit.
Considering that the credit reference agencies information can vary, it can be frustrating if you want to know how all three agencies rate you. For this reason we recommend registering with a service called Check My File. This is because Check My File allows you to see the credit score and credit report held by all three credit reference agencies, all in one place. There is normally a small monthly charge but they do offer a 30 day free trial.
Every mortgage lender is different. Some will use Equifax, whilst some will use Experian or TransUnion. It is also becoming more common that mortgage providers can use a combination of more than one credit agency when running their credit check. For this reason, it is important to have visibility of all 3 agencies where possible.
A persons credit rating will effect the mortgage they are able to get. A low credit score can make it more difficult to get a mortgage. Depending on how bad the credit score is, it can ultimately effect the interest rate. This is because specialist mortgage lenders generally charge higher interest rates. The more specialist the situation, the higher the rate is likely to be. This basically comes down to risk. If the lender feels there is a higher level of risk based on a poor credit score, then they may only be able to offer sub-prime mortgage products, which will be a higher rate and ultimately a higher monthly cost.
You may have heard or read the phrase ‘adverse credit’. But what does it mean? Adverse credit is terminology that is used to describe a less than perfect track record of repaying credit. It basically means the same as bad credit or poor credit. In the world of mortgages, adverse credit can make is harder to get a mortgage.
It is possible to get a mortgage with a score much lower than 600. However, there are many things that can effect your ability to get a mortgage. Credit score can have an effect, depending on the lender.
One other thing to know when we are talking credit scores and mortgages is that not all lenders ‘credit score’ applicants. They will all check historical credit behaviour, but they don’t all go off the score. For this reason, if you have any missed payments, defaults or CCJs it is always best to a consult a broker who specialises in adverse credit mortgages.
There are a number of things that can help to improve a credit score, depending on your circumstances:
- Reduce any credit card balances that you may have. If your balance on the card is more than 50% of the card limit it can effect your score negatively. Therefore, it is important to be mindful of card balances.
- Ensure your electoral roll information is up to date and accurate.
- Go through your credit report and check if there is anything on there you were unaware of. Or anything that is not accurate or unusual.
- Paying off debt or reducing you overall borrowing down as low as possible. It may not be possible to pay off all of your debts but if you have high borrowing with a low score, reducing the overall borrowing amount will start to help.
- If you don’t have any credit currently this can result in a low score. In this situation using a credit card for small responsible purchases, such as fuel or food shopping, and then clearing it each month can have a very positive impact. This is because you will be demonstrating your ability to behave well with available credit.
- If you have missed payments, defaults or CCJs etc they will have an effect until they are removed which takes 6 years. The more time passes since the last adverse credit event the better.
- Avoid late payments. Even though you may still ultimately make the payments, if they are late this will have an impact on your credit file. Multiple late payments can be devastating to your credit report. 3 late payments on the bounce, which is known as a status 3, can make it very tricky to get a mortgage with any mainstream lender.
Depending on the severity, having a bad credit file can result in needing a higher deposit.
Again, this comes down to the lenders approach to risk. The less deposit, the more the mortgage provider has to lend in relation to the value of the property (Loan To Value LTV). If the adverse credit is quite bad then you may find a maximum LTV of 70%.
Yes – it is possible to get a mortgage with bad credit.
However, it can be tricky. For this reason, it is generally a good idea to speak to a specialist mortgage broker who knows the market, and knows the right mortgage lenders to approach.
It will always depend on the specifics of the credit problems. As a general rule, the longer it is since the last adverse credit event the better. The more time has passed, the more your credit score and rating will have had chance to recover.
If you have had a mortgage application declined previously, get in touch as we have helped many people get a mortgage that have been declined elsewhere.
When you apply for a mortgage, normally it is a 2 staged process.
The first part is the ‘decision in principle’ (DIP), or application in principle as it is also known (AIP). After the DIP or AIP comes the ‘full mortgage application’.
When we submit a decision in principle this is when the lender will typically run their credit check in the back ground. When the DIP is submitted you will need to confirm that you are giving the lender permission to carry out a credit check on you. As you have given them your consent, they are allowed to carry out this check to establish the facts around your credit behaviour and finances.
This is how a mortgage lender gets to view your credit report.
There are many things that can effect credit score. One things that can effect credit score of a person who has never missed a payment is a credit card balance vs the credit card limit. Once a balance goes over 50% of the limit this can start to have a negative impact on credit score.
It looks much worse to have a balance of £350 on a credit card which has a £400 limit than it does to have a balance of £3,000 on a credit card that has a limit of £10,000. Although the later is borrowing much more, it is actually a much lower percentage of the available credit amount. This is demonstrating that the person can have a large amount of credit available to them without spending it. Yet the person with the £350 balance looks much worse as they are much closer to their limit.
There are 4 main things you need to do if you want to apply for a mortgage with bad credit:
- Get access to your credit reports. (See above Experian, Equifax, or TransUnion but using CheckMyFile)
- Save as much as you can towards the deposit. As mentioned previously, having adverse credit history can effect the loan to value limit of a mortgage. Therefore, having more deposit can make the process easier.
- Avoid multiple searches. Submitting multiple applications can have a negative effect on your credit rating if there a number of ‘hard foot prints’ being left on your credit file.
- Speak to an expert mortgage broker who specialised in helping people with adverse credit get mortgages.