Getting a Mortgage with a Bad Credit Score

April 1, 2015

It is possible to get a mortgage with a bad credit rating, even if you have previously been declared bankrupt. Mortgage loans for bad credit borrowers do exist – you may just need to look a little harder for a specialist mortgage lender for bad credit.

Having a bad rating score does not always reflect poor payment history. Failing to register on the Electoral Roll, added to the fact that credit reference agencies don’t always display accurate, up-to-date information, may cause an issue. It’s well worth checking the information held by each agency so that it can be amended if necessary.

Even if you’ve only missed a few credit card payments, a bad credit score will make it difficult to get a standard mortgage, and you’ll probably have to pay significantly more in interest because of your poor history. Higher mortgage administration fees are also commonly charged by bankruptcy mortgage lenders.

Home mortgages for bad credit
Other factors to consider when applying for this type of mortgage include the requirement for a larger deposit, usually a minimum of 20%. This reduces the lender’s risk, so if you can pay nearer to 30% of the property value, your chances of acceptance are likely to improve.

Lenders will require proof of a regular income, generally more than £15,000 per year, and this can be provided in the form of wage slips for the previous three months. It’s worth noting here that if you are a previous bankrupt, government schemes such as Help to Buy and Shared Ownership may be out of your reach.

What is a bad credit mortgage?
Also known as a sub-prime or adverse credit mortgage, a bad credit mortgage is one that may be offered following a failed application for a standard mortgage, or failing a lender’s credit check procedures.

Even though this may be the only type of mortgage currently available to you, as long as all repayments are met on time you might be eligible to move to a standard mortgage in a few years, and enjoy a lower interest rate as well as a much improved credit score.

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What you should do before applying for a mortgage loan with bad credit

• Check your credit file for accuracy with Experian, Equifax and CallCredit

• Make sure you don’t apply for other types of credit in the weeks leading up to the mortgage application. If any are refused, it will show up on your credit record.

• In the same vein, don’t make multiple mortgage applications online as your record will be adversely affected by the large number of credit searches that ensue

• Don’t forget to include administration fees and other charges in the total cost when comparing different mortgages

• Use an online comparison website to get an initial idea of interest rates and the different types of mortgage available, including tracker, discounted, fixed and variable rate products

• Calculate your monthly outgoings including household bills, existing loan and credit card repayments. This will dictate how much you can afford to repay monthly.

• Consider using the services of an independent, whole-of-market mortgage broker who specialises in bad credit mortgages

You should also be aware that unless you opt for a fixed rate mortgage, any future interest rate rises will increase your monthly repayments.

Where to find a mortgage lender for bad credit
Specialist mortgage lenders that cater for people with poor credit history are a good place to start. They may be independent companies that only lend to people with bad credit, or subsidiary departments of larger mortgage lenders.

A good mortgage broker will take all circumstances into consideration and find lenders most likely to accept you before applying. This is important, as failed applications will harm your credit rating.

Refinancing mortgage with bad credit
Debt consolidation mortgages that pay off debts and leave you with a single monthly mortgage payment sound ideal, but should be discussed with a professional insolvency advisor to make sure they are the best solution for you.

These types of refinancing mortgages restructure your finances, but you’ll potentially be paying off your debts over a much longer time. You may be able to get a refinancing mortgage even with County Court Judgements and mortgage arrears, but you should first factor in the potential benefits of tackling your debts in a different way, such as via a Debt Arrangement Scheme.

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John Baird

Insolvency Adviser

Tel: 0800 063 9250

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