How To Get A Mortgage With Bad Credit

Securing a mortgage with bad credit poses challenges, but it’s certainly feasible.

Wondering if you can still obtain a mortgage with a less-than-ideal credit history? The answer is yes, albeit with difficulty. While having a poor credit record may limit your options, it doesn’t render mortgage approval impossible.

Mortgage providers conduct thorough credit assessments on all applicants, and past financial missteps are scrutinised. The impact of these blemishes varies depending on their severity and recency.

While some mainstream banks may decline your application due to an adverse credit history, alternative institutions like building societies often offer more flexibility. Additionally, there are specialised “bad-credit mortgage lenders” catering to individuals who have faced challenging life circumstances, such as illness or divorce.

These lenders exhibit greater leniency in their assessment processes, yet they typically impose higher interest rates and require larger deposits to mitigate their risk.

How to get a mortgage if you have bad credit

There are numerous strategies to bolster your chances of mortgage approval:

• Assess Your Partner’s Debt: If you’re purchasing jointly, your partner’s debt affects the application. Discuss any outstanding debts openly before proceeding.
• Prioritise Your Own Credit Health: Maintaining a consistent record of timely and full payments enhances your credit score, signalling reliability to lenders.
• Exercise Patience: Negative marks on your credit history diminish over time, especially if your financial situation has improved significantly since the incidents occurred.
• Maintain Transparency: Attempting to conceal information from mortgage lenders is futile, as they conduct thorough investigations. Transparency is key to building trust.
• Provide context: Be forthcoming about past financial challenges and demonstrate how you’ve rectified them. Lenders are interested in understanding your journey to financial stability.

Types of bad credit: missed payments, IVAs, CCJs and bankruptcies

As mentioned earlier, mortgage lenders scrutinise not only your credit score but also delve into the specifics of your credit history when evaluating your application. They seek to understand the circumstances surrounding any past financial issues, including what transpired, when it occurred, and why. Different incidents carry varying degrees of significance—for instance, a missed utility bill is typically viewed less severely than a court judgement.

Given the diversity of lender criteria, it may boil down to identifying the lender best suited to or empathetic towards your situation.

Here are some common examples of poor credit, their potential impacts on your mortgage application, and available assistance:

• Missing Payments: Failure to meet payment deadlines, whether for bills or outstanding debts, results in defaults recorded on your credit history, thereby lowering your rating. While some missed payments may be more forgivable, such as a utility bill, any missed mortgage payments are viewed gravely by lenders.
• County Court Judgements (CCJs): A CCJ is issued if you fail to repay owed money, even for minor sums, and remains on your record for up to seven years. Lenders consider the amount of the CCJ and its status when evaluating your application. While some high-street lenders may entertain your application if the CCJ is over three years old and fully repaid, unsatisfied CCJs significantly diminish your prospects.
• Debt Management Plans, or IVAs: Implementing a debt management plan involves reaching an agreement with creditors to repay a set amount monthly. Alternatively, an Individual Voluntary Agreement (IVA) allows you to repay affordable amounts over a longer duration, typically five to six years. Although these arrangements are recorded publicly, creditors cannot demand full repayment while an IVA is active.
• Bankruptcy: In dire situations, declaring bankruptcy may be necessary. Specialist lenders might consider your application if bankruptcy occurred over six years prior and you have been discharged, but mainstream lenders are typically less accommodating.

Checking your credit score

Regularly monitoring your credit score is essential for staying informed about your financial standing.

However, when it comes to applying for a mortgage, it’s wise to proceed with caution, especially if there’s a possibility of rejection. Each unsuccessful mortgage application leaves a mark on your credit history, potentially lowering your score.

One way to circumvent this issue is by applying for a mortgage in principle, as lenders often conduct a “soft check” that doesn’t impact your record. However, soft checks may not uncover every detail of your history, leaving room for potential issues to arise later during the actual application process.

Regardless of your circumstances, it’s always beneficial to review your credit report before applying for a mortgage. Consider checking with multiple companies, as their scoring methods can vary.

Once you’ve obtained your report(s), meticulously review all information for accuracy and consider strategies to enhance your credit score.

In many cases, waiting until your credit history improves can lead to access to more favourable mortgage deals. A trustworthy broker can offer insights into which deals you’re likely to be approved for or advise you to wait until your situation improves.