Bad Credit Mortgages
What is bad credit?
Any negative mark against you on your credit file can be considered as bad credit. The more negative marks against you, the lower your credit score will be. Checking your credit score prior to a mortgage application is always advisable.
The severity of your financial issues determine to what extent your overall score is impacted. In order of severity, these are the issues that will negatively impact your credit record:
- Late payments
- Missed payments
- CCJs (County Court Judgments)
- Payday Loan Usage
- Mortgage Arrears
What do mortgage providers view as bad credit?
The criteria used to assess applicants’ credit files will differ slightly between each mortgage lender. No lender will publish the criteria and they will not ordinarily tell you why you have failed to meet their criteria.
Whilst on the lesser end of the severity scale, late and missed payments can still result in negative marks on your credit report. Having direct debits set up to pay all of your outgoings can prevent accidental oversights that affect your credit rating.
Where you miss a number of payments in a row, you will need to ensure all of these are clear before your credit score will improve.
CCJs (County Court Judgments)
If you leave missed payments unresolved, the creditor you owe the outstanding balance to can take you to court in order to get their money back.
If you have a County Court Judgement (CCJ) registered in your name, it stays on your credit file for six years. Even lenders willing to consider a CCJ on file will probably want you to have paid the balance prior to considering your mortgage application.
IVAs (Individual Voluntary Agreement)
An Individual Voluntary Agreement (IVA) is a type of debt management plan used when your debts have become unaffordable to pay back. You will be able to pay off your creditors at a rate that is more affordable to you over a defined period of time, usually five years. Sometimes a portion of the debt will be cleared from your account as part of this agreement.
An IVA will need to have been clear for between three and six years before most lenders will consider your mortgage application.
Debt Management Plans
With a debt management plan, there’s no agreement between yourself and the creditor for them to accept lower repayments, so the account(s) can still go into default, as the creditor will not consider the debt fully satisfied.
After clearing a Debt Management Plan, most lenders will expect you to have maintained payments full and on-time to all creditors for at least twelve months prior to your mortgage application.
If you’ve had your home repossessed due to non-payment of your mortgage, you won’t be considered for a mortgage for a minimum of six years.
Whilst bankruptcy wipes your debts entirely, it also affects your credit score the most severely and for the longest duration.
After bankruptcy, you’re not eligible for any credit at all for the first year, but it will be on your credit file forever. Some lenders won’t consider you as far as twenty years into the future.
Even specialist bad credit mortgage lenders need the bankruptcy to have been discharged for six-year prior to considering your application.
Payday loan providers offer short-term loans at very high-interest rates and are usually used in desperation.
The use of payday loans causes concern that you’re unable to afford your current outgoings, particularly when you have used them repeatedly. Most lenders won’t consider applicants who have used payday loans within the last three years.
What about if I have no credit history?
Those with a lack of credit history will not be looked upon as having bad credit, even though the score on the credit file is low. There are some lenders who are more flexible, particularly where there is a lack of credit, rather than poor credit history.
Will anyone lend to me with bad credit?
Applying for a mortgage with bad credit does not automatically mean that you will be declined. Some lenders are willing to accept lower scores than others and some will look at the reasons for your poor credit rating. You’ll need to provide more documentation and won’t have access to such competitive mortgage deals as those with strong credit scores.
Generally, the longer ago your bad credit occurred, the more likely a lender will be to accept your application. You will also likely need to offer a higher deposit, somewhere in the region of 25-30%, rather than the standard 10%.
Bad Credit Mortgages
People with bad credit are unlikely to find a mortgage lender on the high street who will consider them. Bad credit mortgages are offered by specialist lenders and you’ll usually need to apply via a Mortgage Broker.
How do I improve my credit score?
There are a range of ways you can improve your credit score prior to your application:
- Make sure any current debts are cleared
- Set up direct debits to ensure all credit and utility bills are paid in full and on time
- Check you’re on the electoral roll at your current address
- Ensure all accounts have your current address details and close old accounts
- Keep any borrowing within 50% of your credit limits
- Avoid any form of debt management plan
Why Use The Mortgage Broker Ltd?
At The Mortgage Broker (London) Ltd, it’s our vision to become the UK’s most trusted and respected mortgage broker. The only way for us to achieve this is by providing straightforward and transparent advice to every one of our clients.
From your first call to your last, we put customer service first before all else so you can be confident in getting expert mortgage advice.
Your home may be repossessed if you do not keep up repayments on your mortgage.
We offer FREE no-obligation advice with no hidden costs. A payment is only taken when we proceed with the application. Therefore if we don’t complete any business, the customer never pays a penny.