Mortgages for First-Time Buyers with Bad Credit

A first-time buyer is anyone who has never owned a property. This includes both residential homes and buy-to-let properties. It doesn’t matter if you previously owned a property but now don’t, you would not be classed as a first time buyer.

Being a first time buyer shouldn’t impact your mortgage options. The only benefit of being a previous homeowner instead is that a lender can see on your credit report that you have a history of making mortgage payments on time.

Yes, you can still get a mortgage as a first time buyer with poor credit. However, you might find your options limited, especially if you don’t have that much saved in deposit and require a higher LTV (loan-to-value) – as is common with many first time buyers. This is because having bad credit on your file may mean that you have to use an adverse credit lender, and many adverse credit lenders require at least 15% in deposit and will only lend up to 85%.

• Higher interest rates – lenders view bad credit as a higher risk, which often results in higher interest rates
• Limited lenders – not all lenders offer high LTV mortgages, like 95% mortgages, to individuals with poor credit histories. Those that do may have stringent additional criteria
• Stricter requirements – you might face stricter requirements regarding your employment history, income stability and other debts

Having no credit rating might not seem like a credit issue, but it is. If you have nothing in your credit history, this doesn’t provide the lender with any proof that you’re capable of paying off bills and loans properly. This can make it harder to get a mortgage.

It’s important to note however, that you probably have more on your credit report than you first thought. Simple things like paying your phone bill on time and being registered on the electoral register can contribute to building your score. If you’re concerned about your credit rating, check with credit reference agencies to find out your score.

A county court judgement is a serious credit issue. It’s still possible to get approved for a mortgage, but you’ll likely need to use a specialist adverse credit lender, which means you may have to pay a higher rate and provide a bigger deposit.

The major things to consider with a CCJ on your credit report is how long ago the CCJ happened, how many CCJs you have, the value of the issue and whether or not it has been fully satisfied. If you have not yet satisfied the CCJ, you’ll find that you have access to a very small handful of lenders.

Having defaults on your credit report will likely mean that you have to use a specialist lender. However, different types of defaults will often be viewed with varying levels of severity. For example, a small default on a utility bill will often be seen as less of a problem compared to a default on a mortgage. Lenders also prefer to see settled defaults compared to unsettled defaults.

An IVA (individual involuntary arrangements) suggests that you have more major issues with handling your finances, as people rarely have to get an IVA for a minor debt. This means that you could be a higher risk to lenders; most high-street lenders will not consider any buyers with IVAs. Nonetheless, there are specialist lenders that consider applications on a case-by-case basis. These will come with higher rates and possibly deposit requirements than standard lenders.

Bankruptcy is one of the most severe issues that a first time buyer could have. You will need to wait a certain period of time after bankruptcy to apply – different lenders have different criteria regarding this.

Loans and credit cards are more common issues that most first time buyers have. The chance that you will get a mortgage with loans and credit card debt will depend on the severity of the issue. Some of the most common things that lenders will look at are:

• Percentage of credit limit used – if you use a high amount of your available credit, this might suggest that you struggle to manage your finances, and you might miss your mortgage repayment if you have an unexpected bill to cover
• Payday loans – these can be seen as less preferable than standard borrowing, especially if it was recent
• Credit card debt – as long as you’re keeping up your repayments and not using too much of your limit, these are usually accepted
• Unauthorised borrowing – if you have unapproved overdrafts or credit card debt, this will be seen as a more serious issue

Other credit issues that lenders will often look at are:

• Low credit score
• Late payments
• Debt management plans
• Lots of recent hard credit checks or credit applications

These might not be as serious as some of the issues listed above, but if you have multiple bad credit events then you will find it harder to get a mortgage at a competitive rate.

Credit problems can limit the deals available and the number of lenders who can consider you. Nonetheless, there are adverse lenders who consider applications from people with a lot of different credit problems.

Your best option is to contact a mortgage broker like John Charcol to find out your next steps.

If you have a poor credit history, using a broker can help you find more specialist adverse credit lenders. Brokers have access to lenders that homebuyers cannot deal with directly, which means if you don’t use a broker, you risk missing out on a more competitive deal.

At John Charcol we can direct you towards the best mortgage lenders for first time buyers with bad credit and give you advice tailored to your needs.

An adverse credit mortgage is generally the same as any other mortgage. The 2 main ways that they differ are in the interest rates and the deposit requirements. You’ll often find that applicants with poor credit will have to pay higher interest rates. This is to counteract the additional risk that lenders take on when lending in these situations.

The deposit requirement for bad credit is often also higher than for those with good credit. This is again to lessen the risk that lenders take on. Many adverse credit lenders will require a 15% deposit as a minimum. The amount you have to put down in deposit will be confirmed at the decision in principle stage of the mortgage process.

Before applying, take steps to improve your credit score. This can involve paying off outstanding debts, ensuring all bills are paid on time, correcting any inaccuracies on your credit report, and reducing your credit utilisation ratio.

If possible, saving more than the minimum required deposit can help. A larger deposit reduces the lender’s risk and may make them more willing to offer you a mortgage.

Some lenders specialise in mortgages for people with poor credit histories. These lenders often understand your situation better and can offer more tailored products.

A broker with experience in bad credit mortgages such as John Charcol can be invaluable. We can advise on the best lenders to approach and help you navigate the application process to improve your chances of success.

100% mortgages are not technically offered. However, there are some schemes such as the Barclays Family Springboard, where a friend or family can put the deposit amount into a savings account as security on the mortgage until enough time has passed. Unfortunately, it can be hard to get approved for these mortgages if you have poor credit.

Buying your first home can be a challenge if you have a poor credit history or no credit score. Your chances of being approved for a mortgage will depend on the severity of the issue and how recent it is.

Here is a summary of some key points to consider when getting a first time buyer mortgage with bad credit:

Practical considerations

• Budget wisely – make sure you can comfortably afford the mortgage payments, especially as interest rates for bad credit loans can be higher
• Long term impact – understand the long term implications of taking a high LTV mortgage with bad credit, including potential for higher overall costs

Navigating the mortgage market with bad credit and a desire for a high LTV mortgage can be complex, but with the right preparation and support, it is possible to find a suitable mortgage product. Here at John Charcol, we can guide you through the mortgage process and help you find a great deal to buy your first home.

Get in touch today on 0808 258 4955 to see how we can help.