Bad Credit and Your Mortgage Options

How credit scores work

Your credit score is a 3 digit number based on your borrowing and financial behavior within the last 6 years. It’s provided by a credit reference agency, and is categorised as very poor, poor, fair, good, very good or excellent.

• Missing mortgage payments
• Paying bills late or not at all
• Relatively high levels of debt – excluding student loans
• Regularly maxing out credit cards
• Not registering on the voters roll
• Not having much of a payment or credit history – i.e. not building up a record of regular, punctual payments
• Receiving CCJs (county court judgement) or defaults
• Declaring bankruptcy or entering into an IVA (Individual Voluntary Agreement)

These all apply to the last 6 years since all payment history – including CCJs and defaults – automatically “drop off” your credit file after 6 years. So, if you missed a mortgage payment but it was over 6 years ago, it won’t affect your credit score or even show on your current credit file.

It is possible in the UK to buy a house or remortgage with poor or bad credit, but your choice of lenders will be limited and the options available to you will depend on the nature of the poor credit and how recent it was.

For example, we still may be able to find you a suitable lender if you were previously declared bankrupt but it was discharged 3 years ago, or you only had CCJs or defaults due to a few missed credit card or mobile phone provider payments.

This might also be the case if you missed one or 2 missed mortgage payments that were cleared over 6 months ago.

The first step, if you suspect you could have adverse credit, is to obtain a copy of your credit file from a credit reference agency. Once you know what’s damaging your credit score, you’ll be able to find out what options are realistically available to you and what you can do to improve your chances of securing a mortgage.

Why does poor credit matter to mortgage lenders?

A very good or excellent credit history illustrates your ability and willingness to meet regular commitments, like a mortgage. It’s more difficult to get a mortgage with a poor credit rating as it may indicate that you’re unable to keep on top of your finances.

Mortgages and remortgaging

The maximum LTV (loan-to-value) available to a person with a poor credit history is usually lower than to someone with a very good credit history. You’ll likely be limited to a maximum LTV of 85% if you have a history of poor credit, compared to the maximum LTV of 95% for borrowers with very good credit histories.

Interest rates on adverse credit mortgages and remortgages are also typically higher than those on standard products for the same reason.

First-time buyers

Finding a mortgage for a first-time buyer with poor credit can be difficult. The majority of first-time buyers want to borrow more than 85%, which is the limit at which most lenders offer bad credit mortgages. Therefore, we often recommend improving your credit score before submitting a mortgage application, rather than trying to get on the property ladder with bad credit as this could give you access to more lenders and mortgage products.

It’s also a good idea – if it’s possible – to try and save towards a bigger deposit as this generally gives you access to better rates.

For some help improving a low credit score, see our blog post: What Credit Score Is Needed to Buy a House?

You can also find tips on how to save for a house deposit in our guide: House Mortgage Deposit.

No deposit and bad credit

There are a few 100% mortgages on the market, but they come with strict criteria. Therefore, it’s unlikely you’ll find a lender that will offer a no deposit mortgage to an applicant with bad credit. If anything, you’ll need a slightly larger deposit to compensate for your poor credit history.

Bad and low credit score lenders

There are lenders that offer mortgages to people with bad or low credit scores, but they usually charge more interest than for people with very good credit scores. This is because mortgages and loans for poor credit borrowers are riskier for lenders.

Even in the limited lending space of bad credit mortgages, there are several lenders that have lots of different products to choose from.

You’ll probably need a broker if you want to buy a house or remortgage with bad credit, as many bad credit lenders don’t accept applications directly from borrowers. They require that you use a broker.

We’re experts in specialist cases and know the best mortgage lenders for people with bad credit, so send us an enquiry online or call us on 0808 296 3932 today.