Can you get a mortgage with bad credit?
If you’re wondering whether you can get a mortgage with bad credit, the simple answer is ‘yes’. But if you are able to secure one, then there are some things you need to know.
If you do have bad credit, you’re not alone! According to a study last year, the number of adults with adverse credit hit a record high. It showed that 8.4 million people have experienced adverse credit in the last three years.
The study found that almost a third of people questioned – more than 15 million – had experienced poor credit sometime in their lives. It also revealed that more than 1.7 million people with adverse credit were planning to buy a property in the next year.
So buying a property and getting a mortgage with bad credit isn’t uncommon. But what are your chances really? We’ll take a look at how you can get a mortgage with bad credit.
What is bad credit?
First of all, you need to understand what bad credit is. We’ve looked at this in an earlier blog post. But to recap, whether you are accepted for credit – such as mortgages – depends on your credit history.
So, if you’ve missed a credit card payment, defaulted on a loan or apply for credit a lot, then this will impact your history. The more times you’ve defaulted or applied for credit means mortgage lenders will see you as a higher risk.
Knowing your credit score will help you understand how risky lenders will view you as. You can find that out through credit scoring agencies. The three main agencies in the UK are Experian, Equifax and TransUnion.
The scores they give differ in that the numbering they use are different. But the way the work in the same. A higher number means a higher score and a better credit rating. Lower scores mean you’re considered a bigger financial risk to lenders.
Equifax rate from 0-1,000
Experian rate from 0-999
TransUnion rate from 0-710
According tofinder.com, the average Equifax score in the UK is 644.
Check your credit score
If you want to check your credit score, you can apply to a credit reporting company, such as Check My File, which offers a FREE 30-day trial. After the trial ends, the subscription is £14.99 but it can be cancelled at any time.
This gives you the same information as lenders and can help you see what your score is.
Usually, you can do this without affecting your credit history as it doesn’t record your search. Applying for loans or mortgages too often can lower your score due to too many searches.
This means a lender is much more cautious about loaning you money.
Check My File is the UK’s only multi-agency credit report that runs a report on all three credit agencies, which we mentioned above.
Can you get a mortgage with bad credit?
The short answer is yes, it is possible to secure a mortgage with bad credit. Known as bad credit, subprime or adverse credit mortgages, such loans can help those who have had problems with credit. These mortgages often mean you’re likely to pay higher interest rates and you have to pay a bigger deposit. You might be asked to offer a deposit of 20-25% of your property’s value rather than the usual 5-10%.
Some lenders specialise in mortgages for people with adverse credit. You’re unlikely to find many high street banks offering them, so it’s always a good idea to use a mortgage broker. Not only do they access mortgages not offered by high street lenders, they can often find better rates and deals than comparison sites. They are also experienced so can guide you through the process better. Our team is always ready to help.
What can I do to improve my chances?
Getting a mortgage with bad credit is possible and it’s always more likely if you can demonstrate you’re taking care of your credit history and budgeting. These tips will help:
Review your spending. Reduce your costs where possible and keep monthly outgoings consistent. Always try to have money left at the end of each month.
Pay regular payments. Making sure you pay utility bills and credit card bills on time and in full improves your credit score.
Review your credit report. Using the likes of Experian and Equifax helps you keep up to date with your latest report. A mistake or a debt that has been cleared but missed on your report, could be impacting your score. It’s easy to do, and the agencies have apps that make keeping track of your score easy.
Make a note of difficulties. If poor health or redundancy has impacted your credit score, make a note. If you can show that your credit history has been impacted by unexpected events, it can help explain the issues to lenders.
Be realistic. We all have an idea of a dream home. But don’t set your sights on a property you will struggle to afford.
You may need a guarantor. A parent of older relative may be asked to act as a guarantor on your mortgage. This reassures lenders that payments will be made.
Be prepared. If you know your credit score is low, be prepared and ensure you have the money available to pay a higher deposit.
Can we help you?
We can help anyone with adverse credit secure a mortgage. But it all depends on your personal circumstances. We need lots of information to provide to lenders, which is the same for any mortgage application.
Don’t be disheartened if you have bad credit. Our understanding team has years of experience helping people like you. So contact us today for a no obligation chat.
Remember, you’re home is at risk if you fail to keep up repayments on your mortgage
