Can I get a mortgage with bad credit?

Having a bad credit rating can mean being accepted for a mortgage is difficult, but not impossible. Your mortgage options might be limited, with many of the mainstream mortgage providers rejecting you outright. However, there are specialist lenders who might be able to help. They offer a bad credit mortgage, also known as a subprime mortgage or an adverse credit mortgage.

These specialist bad credit mortgage lenders tend to have stricter criteria. But, if you can meet them, you might be on track to successfully apply for a mortgage:

• The lender may ask for a larger deposit than a standard mortgage
• The lender’s interest rates or APRC  may be higher than standard mortgage rates
• The lender’s LTV may be lower, meaning you might have to provide a bigger deposit compared to a standard mortgage

How can I improve my chances of being accepted for a bad credit mortgage?

Improve your credit history by borrowing credit responsibly and making your repayments on time, you can begin to repair your credit history. This can even be as simple as spending on a credit card and making sure you clear the balance on time, every month.

Registering to vote at your current address is an easy win for improving your credit score.

Consider old friends’ and your partner’s financial history when you apply for a mortgage. It’s important to consider who you’ve shared financial payments with in the past. This could be an old housemate or partner that you used to share an account with.

Check your credit report with a free credit service to check your credit report. Credit check companies like Experian or Clearscore can give you a general idea of how lenders view your financial identity. They can give you tips on how to rebuild your score too.

Take your time. Depending on the credit problem, some marks on your credit history may disappear over time. This means certain lenders might consider your mortgage application even after you’ve gone through bankruptcy, an Individual Voluntary Arrangement (IVA) or a CCJ. The timescale can vary from lender to lender, so it’s always worth checking with them to get more information.

Appeal to the lender by applying when you’ve got yourself in the best financial position you can be in. A regular, stable income is always a big plus as is a big deposit. If you do have some credit issues from the past, the lender will be able to see you’ve made recent efforts to fix your financial issues.

Gifted money from family for a deposit. Some lenders will accept a deposit if it’s ‘gifted’ from a member of your family. The lender won’t accept a gifted deposit that’s a loan, so you must be under no obligation to pay the money back.

Have a family member become a guarantor. If you find yourself unable to get a mortgage, having a family member as a guarantor could be a great option. A guarantor is someone, such as a family member or parent, who takes on some of the risk of the mortgage. A guarantor will usually have to offer something to the lender to cover the mortgage payments if you start to miss them. Like their home as security against the loan, for example.

Speak to a financial advisor if you have concerns about how your bad credit could affect you getting a mortgage, you might want some advice. So it could be worth speaking to a mortgage or financial advisor. You may have to pay for this service, but they could help you find a good mortgage deal in the future.

The pros and cons of a bad credit mortgage

Pros

• If you’ve been rejected by the big high street lenders, that doesn’t mean you can’t find a deal. There are specialist lenders you can apply to and help you get a mortgage. Make sure to shop around as best you can to find the right deal for you and your financial situation
• Being able to get on the property ladder is a big plus. If you’ve found the perfect property and the right mortgage deal, successfully making your repayments every month can help improve your credit history
• In the right situations, such as when the housing market has slowed down, you may stand a better chance of negotiating a better price for a property you’re looking at

Cons

• Deciding to get a bad credit mortgage now means you have less time to build up your credit score. If you decide to wait and work on improving your credit report, you could find yourself being able to shop around for better deals on a wider choice of mortgages
• It means having less time to save for a deposit. The larger your deposit, the more likely you are to be accepted by a lender, as it shows you can handle your finances
• A bad credit mortgage will generally mean being charged higher interest rates, which means you’ll pay more back in the long-run. If you decide to wait and work on your credit score and financial situation, you may find a better deal with better rates

What do I need before comparing bad credit mortgage deals?

Having the following information ready will help make comparing bad credit mortgages a bit easier:

• Details of your salary and any other income you earn. If you’re buying with a partner, have details of their salary and any additional income too
• Details of your regular monthly outgoings
• How much you’re looking to borrow from the lender and how much your deposit will be
• If you’re going to live in the property you’re buying or letting it out
• Whether you’re getting help from a government buying scheme