Buying your first home should be exciting, but it can be a challenge to get a mortgage if you have poor credit. If your credit history or credit rating is bad, you run the risk of your mortgage application being declined, especially by high street lenders who might only lend to people with good credit reports. However, this doesn’t mean you don’t have any mortgage options.  

In this guide, we will cover everything you need to know about getting a mortgage for bad credit first-time buyers, including how different credit issues will affect you and your options if you’re struggling to get a mortgage offer.

Who Is Classed as a First Time Buyer?

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.

Can I Get a Bad Credit Mortgage as a First-Time Buyer?

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%.

What Credit Issues Can Affect Getting a Mortgage?

Almost any bad credit issue can cause problems when it comes to getting a mortgage. This is because credit problems suggest to lenders that you might struggle to make your repayments on time, meaning that they would be taking on a higher risk if they decided to lend to you.

The most important things to consider are how severe the credit issue is, as well as how recent it is. Smaller credit problems such as minor missed payments will not look as bad to a lender as more major issues such as bankruptcy. Also, the longer it’s been since the bad credit event, the less of a negative impact it will have on your credit score and the mortgage options available to you.

Can I Get a Mortgage with No Credit Rating?

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.

First-Time Buyers with County Court Judgements

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.

First-Time Buyers with Defaults

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.

First Time Buyers with Individual Voluntary Arrangements

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.

First-Time Buyers with Bankruptcy

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.

First-Time Buyers with Loans and Credit Cards

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

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.

Can Credit Problems Stop Me from Getting a Mortgage?

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.

How a Broker Can Help You Get a Mortgage with Poor Credit as a First-Time Buyer

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.

What Is Different About an Adverse Credit Mortgage?

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.

Are There 95% Mortgages for First-Time Buyers with Bad Credit?

Some lenders will offer mortgages with only a 5% deposit, but this is less common if you have poor credit. A broker will be able to tell you if there are any 5% deposit mortgages available, given your credit history.

Are There 100% Mortgages for First-Time Buyers with Bad Credit?

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.

Summary: First-Time Buyer Mortgage Bad Credit History

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.

If you need help finding a suitable mortgage, you should use an experienced broker. 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 0330 433 2927 to see how we can help.

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