A bad credit history doesn't mean a mortgage is out of reach. There are bad credit mortgage lenders who can cater to people with bad credit, but many of them aren't directly available to borrowers. This guide will look at bad credit mortgages in detail and how a specialist mortgage broker like John Charcol can help you access the best mortgage deal possible when you have a bad credit history.


What Is Bad Credit?

Bad credit typically means you have a low credit score. Bad credit is usually caused by not making payments on time or defaulting on bills. A person with bad credit will likely find it much harder to borrow money at competitive rates than someone with a good credit history as potential lenders will consider them riskier to lend to than other borrowers.

The reasons for someone's bad credit rating will be marked on their credit report and can be anything from one missed payment to a CCJ (county court judgement) or bankruptcy. The severity and recency of the bad credit event(s) will impact the lenders and deals available to you.

Some examples of bad credit events include:

  • CCJs
  • DMP (debt management plan)
  • Default payments
  • IVA (individual voluntary arrangement)
  • Late or missed payments
  • Mortgage arrears
  • No credit score or history
  • Repossession and bankruptcy

What Is the Lowest Credit Score Accepted for a Mortgage?

There is no minimum credit score for a mortgage. Your credit score will vary from credit reference agency to credit reference agency, and from lender to lender, depending on each one’s scoring system.

Some lenders may not consider your application if you have a low credit score due to bad credit, but this doesn’t mean you won’t have any options, as your credit score isn’t the only factor lenders consider when they credit check you. They look at your credit record as a whole and consider any bad credit events. Each lender has their own measures and tolerance for bad credit and what they're prepared to accept.

Some subprime lenders in particular don’t even credit score you when they perform a credit check. They look at each situation on a case-by-case basis and can consider how the bad credit occurred. This type of lender can be suitable for people with more severe bad credit on their file.

A specialist mortgage broker like John Charcol has access to the whole mortgage market, including subprime lenders. We can help you find the right lender and mortgage product for your circumstances, even if you've been rejected for a mortgage before.


Can You Get a Mortgage with Bad Credit?

Yes, you can get a mortgage if you have bad credit, but it can be harder getting a mortgage with a poor credit report. Every mortgage lender has their own criteria for what adverse credit they can and can’t consider - from missing a bill payment to home repossession.

If you have minor credit issues, such as one late or missed credit card payment, this won’t necessarily stop you from getting a competitive mortgage from a high street lender or building society. But, if you've had an IVA and/or CCJ in the last 6 years or been declared bankrupt, the pool of lenders and product available to you will be significantly reduced.

Essentially, the more severe and recent the bad credit event, the more of an impact it will have on your mortgage options.

The simplest way to ensure you find the best deal for your situation is to use a mortgage broker like John Charcol.

We know which lenders will consider applications despite certain bad credit events and we have access to adverse credit lenders who only operate through intermediaries. Call us on 0330 433 2927 to find out more.


How Do Bad Credit Mortgages Work?

The types of mortgages offered to people with poor credit are typically called bad credit mortgages. These work the same way as a standard mortgage offered to a person with good credit, the main differences being that they usually have higher fees and interest rates. Depending on the situation, some lenders may even require that you provide a slightly higher deposit of at least 15%.

Although this isn’t ideal, the good news is that, as long as you make all your mortgage payments on time and avoid any more adverse credit, you should see your credit score improve. Then you can remortgage onto a better rate later on.


What Can Impact My Credit Score?

Avoiding bad credit events isn’t the only thing you need to consider. Lots of different factors contribute to your credit record and can affect your credit score. We go through some of these below.

Borrowing History

Even if you have a good income and have not needed to use credit, you may have a low credit score as there's no credit record to indicate how responsible you are at borrowing and managing repayments. The age of your active credit accounts can also impact your credit score. If you've had the same accounts for a long time, this can suggest to lenders that you can manage them responsibly.

Utilising a Range of Credit

A range of credit accounts can indicate that you can effectively manage different types of credit, whether unsecured credit, such as overdrafts and credit cards or secured lending, like a mortgage.

Repayment History

Making repayments on time each month is an important way of showing you're responsible for managing your finances and is reflected by a good credit score. If you have late, missed or defaulted payments, the credit lender will report this to the credit reference agencies, which can impact your credit rating. This can relate to all types of credit, from your mobile phone contract and store cards to your overdraft, car loan and mortgage payments.

Joint Accounts

Having a shared mortgage or bank account with someone with a bad credit score can also affect your credit rating. Anyone you are linked to financially will show up on your credit report.

Existing Credit Balances

If you have a lot of debt and frequently find yourself close to your credit limit, it can suggest that you rely heavily on credit. This can influence your credit score and potential lenders' perception of your credit eligibility. Keeping unsecured balances on your credit cards well below the maximum will indicate good financial management.

Overdrafts

An overdraft doesn’t need to necessarily negatively impact your credit score. You can avoid it damaging your score by successfully managing it and limiting how much you use it.


How Can I Check My Credit Report and Credit Score?

You can check your credit score online. There are several credit reference agencies – e.g. Equifax, Experian and TransUnion. Your credit score is a 3 digit number that reflects how well you manage, borrow and repay money. Each agency uses a different scoring method, but most typically categorise scores into very poor, poor, fair, good and excellent.


Why Is It Important to Have a Good Credit Score?

Your credit score reflects the overall health of your credit report. The better your score, the healthier your credit report. And the healthier your credit report, the more lenders and the better the deals you have access to.


What Deposit Do I Need for A Bad Credit Mortgage?

While specialist mortgage lenders tend to charge higher interest rates to offset the risk of lending, many also require larger deposits. This is usually at least 15%, especially if you have several settled defaults or CCJs on your credit report. The larger the deposit you can put towards the mortgage, the better the interest rates you'll likely have access to. A higher mortgage also means a lower LTV (loan-to-value), reducing the lender's risk. The LTV is the size of the mortgage loan as a proportion of the value of the property you're looking to buy.


Why Is It Important to Have a Good Credit Score?

Your credit score reflects the overall health of your credit report. The better your score, the healthier your credit report. And the healthier your credit report, the more lenders and the better the deals you have access to.


Are There Mortgage Lenders for Bad Credit?

There are subprime mortgage lenders – sometimes referred to as adverse credit mortgage lenders – who specialise in mortgages for people with poor credit histories. These lenders don't have the same strict lending rules as high street mortgage lenders and can therefore be more flexible regarding applicants with bad credit events in their history.

Most subprime lenders tend to charge higher interest rates and sometimes require higher deposits than normal lenders. They’re also often not available directly to borrowers and only work through an intermediary such as John Charcol. We work closely with the best mortgage lenders for bad credit to help borrowers with bad credit find the best possible mortgage for their circumstances.

Some of the UK mortgage lenders for bad credit we work with include:

  • Aldermore
  • Bluestone
  • Foundation Home Loans
  • Kent Reliance
  • Pepper Money
  • And more

What Deposit Do I Need for A Bad Credit Mortgage?

While specialist mortgage lenders tend to charge higher interest rates to offset the risk of lending, many also require larger deposits. This is usually at least 15%, especially if you have several settled defaults or CCJs on your credit report. The larger the deposit you can put towards the mortgage, the better the interest rates you'll likely have access to. A higher mortgage also means a lower LTV (loan-to-value), reducing the lender's risk. The LTV is the size of the mortgage loan as a proportion of the value of the property you're looking to buy.


How Can I Get a Mortgage with Bad Credit?

While it can be disheartening to know you have bad credit and that getting a mortgage won't be easy, there are various things you can do before applying for a mortgage to increase your chance of getting accepted.

Take Control of Your Finances

It's worth delaying buying a home until you're in as strong a financial position as possible. In the meantime, build up your credit score by paying your bills on time and using credit responsibly. Keep applications for credit to a minimum as every time you apply, a hard search is performed and recorded on your credit report. Having many hard searches, especially in a relatively short period, can indicate that you cannot live on your income alone.

Save for a Large Deposit

It's also a good opportunity to save up a larger deposit. While doing so may take several months or years, it will give you greater access to competitive mortgage rates.

Check Your Credit Report

Check your credit report online using a credit reference agency such as Experian, Equifax or TransUnion to see whether there are any inaccuracies or issues. This will give you a general idea of your creditworthiness.

Register to Vote

Getting on the electoral roll makes it easier for potential lenders to verify your identity and address and can boost your credit score. Check whether you're already on the electoral register here.

Speak to a Specialist Mortgage Broker

An independent mortgage broker like John Charcol specialising in bad credit mortgages can help you find the right lender and mortgage for your needs. We know who to approach for your situation and we have access to adverse credit lenders require intermediaries.


Summary: Bad Credit Mortgage Lenders UK

Getting a mortgage when you have bad credit can be challenging and will likely cost you more in fees, interest and deposit. However, getting approved for a bad credit mortgage is not impossible, especially with a specialist mortgage broker like John Charcol.

We use our expertise and extensive market knowledge of bad credit mortgage lenders to help you find the right mortgage product for your circumstances. Get in touch today on 0330 433 2927 to see how we can help you.


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