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Can I get a mortgage with bad credit?

Depending on the severity of your credit history, it may be possible to secure a mortgage.

There are specialist lenders that are willing to look at adverse credit, however you are likely to be penalised with higher interest rates and needing a higher deposit.

What are lenders looking for?

Every time you apply for a mortgage, you will be credit searched.  Lenders usually perform a soft credit search at decision in principle stage (an indication on how much the provider will lend and if they will lend at all) and then a hard credit search on full mortgage application stage.

How is your credit file assessed?

This will depend on the individual lender. Some lenders will go by your overall credit score so if you’ve had bad credit in the past but have built your score back up, you could potentially pass with these lenders.  Some lenders have set criteria i.e. no defaults in the last 3 years. They will be searching your credit file to see if you have crossed any of their ‘red lines’.  If you fall outside their adverse credit criteria, you are likely to fail their credit score.

On occasion your credit files may vary between different credit agencies.  Credit agencies may update your credit files at different times through the month so a loan may still be showing on an Experian credit report, but your Equifax credit report has updated earlier and is now showing your loan as being paid off.  This could also make a difference.  Some lenders will use just one credit agency and depending on who they use, the credit search may pass with one and not the other.  There are also several lenders using multiple agencies to compile their searches.

The elements that usually determine whether a credit search will pass or fail are things like missed payments on secured or unsecured loans, county court judgements satisfied or not, defaults satisfied or not, IVA’s (individual voluntary arrangements) or debt management plans, pay day loans, bankruptcy and consistently high credit limits.

How bad is bad credit?

Most lenders assess adverse credit differently and the variables can be quite staggering.  I have had several clients previously that have had a mortgage rejected from their current lender or the lender they bank with, leading them to assume they will be closed off to all mainstream lenders.  On some occasions I have had a look at the client’s credit file, assessed the issues and I have subsequently found that they still fall within the limits of some high street lenders.  Depending on the deals being offered, I’ve occasionally been able to save my client money compared with the deals being offered by the lender that initially rejected them.

This is, of course, best case scenario. The criteria that mainstream lenders tend to consider are one off blips such as a missed credit card payment, historic payday loans etc.  The more historic the problem, the more likely it is to clear credit scoring.  We will always endeavour to secure a mainstream lender as their interest rates are usually far better.

If the client’s credit history fails to achieve the criteria of the mainstream lenders, there is a whole swathe of lenders set up specifically to look after the adverse credit market.  Again, the criteria and limits vary hugely between these lenders and it is our job to match the best deal with the lender most likely to accept the adverse credit history.  Some sub-prime lenders have set up tier systems in which the interest rate increases or decreases depending on how good or bad the credit history is.  For example, the same lender may offer something like –

75% loan to value mortgage fixed over a two year period 75% loan to value mortgage fixed over a two year period
Credit history:

  • No defaults
  • No county court judgements
  • No missed mortgage payments in the past 24 months
Credit history:

  • Defaults – max 2 in 24 months
  • County court judgement – 1 in 24 months
  • Missed mortgage payments – 1 in 12 months
  • Debt management plan satisfied over 3 years ago
Interest rate: 2.99% Interest rate: 3.59%

*The above is purely an example and products are subject to change on a regular basis.

Other points to contemplate when considering an adverse lender: Will they lend money past standard retirement age? Will they lend 5 times your income? Will they take child maintenance payments into consideration to bolster the lend amount? (specifics that are only offered by a handful of lenders) You may struggle to find an adverse lender that also offer these additional criteria requirements.

Remortgaging

After obtaining your mortgage, it is important to keep up repayments.  This will ultimately help improve your credit score and prove to the lender that you are ‘a safe bet’ which will encourage them to offer you a remortgage once your current rate ends.  It may be the case that you are with said lender but by the time your rate ends with that adverse lender you may have built up your credit score sufficiently, opening up your options to more mainstream lenders enabling you to access a more favourable interest rates.

Where do I start?

If you are struggling to obtain a mortgage and you have not yet used a broker, it will almost certainly be worthwhile contacting one.  Brokers will have experience of varying degrees with adverse credit cases and may be able to find you a suitable lender.  Not only that, they will assess your income and outgoings and ensure that you are comfortable with the mortgage payments.  This will be important as sub-prime lenders will usually be more expensive. Your broker will compile a budget for you and make sure there is a buffer in case of future interest rate rises.

*Your home may be repossessed if you do not keep up repayments on your mortgage.

*You may have to pay an early repayment charge to your existing lender if you remortgage.

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