Author: Pete Mugleston - Mortgage Advisor, MD
We’ll explain what your options are if you need a bad credit mortgage but only have a 5% deposit, what you can do to increase your chances of a successful application and why a specialist mortgage broker can be the difference between approval and rejection.
Can you get a 5% deposit mortgage with bad credit?
It’s not completely impossible but will be very difficult.
The success of any application, specifically where adverse credit is involved, will largely depend on:
- The severity of your credit issues
- How long ago they were
- Whether they have now been resolved satisfactorily
Ultimately, mortgage applications are assessed against a lender’s criteria, with high-street banks tending to be stricter when it comes to risk factors like bad credit and low deposits. So, if you have both, the chances of getting the approval you need are diminished.
If you are successful this may mean your mortgage repayments are more than you expected as a result of higher interest rates imposed by the lender to cover their potential risk.
However, there are ways you could get a competitive deal, such as through government schemes or family support mortgages. A bad credit mortgage broker can talk you through these options.
Speak to an expert mortgage broker about 5% mortgages
Maximise your chance of approval with a specialist in bad credit mortgages
How to get a bad credit mortgage with a 5% deposit
Your first step should be to speak to a bad credit mortgage broker who specialises in low-deposit mortgages. Make an enquiry and we will match you with an advisor with expertise in both of these niche areas.
Your mortgage specialist will guide you through the following steps:
- Exploring all low deposit options: This will include any government schemes you might qualify for, family support options and specialist mortgage lenders who offer 95% LTV deals (5 % deposit).
- Downloading your credit reports: Your advisor can help you do this and suggest ways to optimise them. This is vitally important if you only have a small deposit, as it can increase the overall strength of your application.
- Finding the right lender: Not all lenders offer 95% LTV mortgages, but the right mortgage broker can narrow down your search to the ones that do, and help you secure the best rates and deals through them.
How approval is possible
The table below illustrates how likely you are to be approved based on the severity of the issue.
Please note that the likelihood is merely approximate and could change based on the deposit amount.
|Bad Credit Factor||Severity||Likelihood of Approval with 5% Deposit|
|No credit history||Not severe||Possible|
|Low credit ratings||Not severe||Possible|
|Late payments||Not severe||Possible|
|Unauthorised overdraft charges||Not severe||Possible|
|County Court Judgement (CCJ)||Severe||Unlikely|
|Debt Management Plan (DMP||Severe||Very unlikely|
|Individual Voluntary Arrangement (IVA)||Severe||Not possible|
|Bankruptcy||Very severe||Not possible|
|Multiple credit issues||Very severe||Not possible|
|Repossession||Very severe||Not possible|
If your credit issues are not severe (for example unauthorised overdraft usage, a few late payments on credit cards or arrears on unsecured credit), you may still be able to apply for a mortgage with a mainstream lender and get approved.
You may need to wait until you have a higher deposit, and until enough time has passed for these events to have been removed from your credit report. With satisfied defaults or CCJs, you may still be able to get a mortgage but you will most likely need a higher deposit.
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Options for first-time buyers
There are several options potentially open to first-time buyers. For example, government schemes for 5% deposit mortgages might help.
- Mortgage Guarantee Scheme: You need a minimum 5% deposit and the government guarantees a percentage of the mortgage. This is designed to encourage lenders to approve more 95% mortgages as it can help lessen their risk.
- 95% Shared Ownership: Shared Ownership mortgages let you take out a mortgage to buy part of a home and pay rent to a housing association on the rest.
- Guarantor mortgages: Friends or family members with sufficient equity or savings put up collateral. This can reduce your loan to value and offset the risks associated with your credit issues.
But it’s not just the government who can help first-time buyers in this scenario.
If you have family members who are willing and able to help you increase your deposit, other options are available:
- Joint buyer sole proprietor (JBSP) mortgages: You can buy in conjunction with, for example, your parents while still being solely responsible for the repayments. This allows you to benefit from their equity and good credit rating.
- Gifted deposits: Another way of increasing your deposit amount to offset lenders’ concerns regarding your credit history. It must be made abundantly clear that any monies are a gift and won’t need to be repaid.
What if you have no deposit to put down?
If you have family who can help you source a deposit, your situation is not really any different from having a 5% deposit. Although you will be asking them to put up more of their assets in lieu of your deposit.
With no deposit at all and a history of bad credit, your options are even more limited. In this case, it’s best to consider a savings plan so you can create the deposit funds you need whilst monitoring your credit records until your score improves sufficiently to a point where you can more confidently apply for a mortgage.
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Get matched with a specialist low-deposit mortgage broker
Getting a mortgage with a 5% deposit is not completely out of the question. Neither is getting a mortgage with bad credit. With both, your best bet is to speak to a broker who deals in low-deposit mortgages with bad credit day in, day out.
Our broker matching service is designed to assess your circumstances and then partner you with a mortgage advisor who specialises in helping people just like you to get the best deal available to them.
After a brief chat, we’ll identify the best broker for you and get the ball rolling. All the brokers we work with have whole of market access and will compare the whole UK mortgage market to get you the best deal possible.
To speak to your ideal mortgage broker call today on 0808 189 2301 or enquire online.
Speak to a mortgage expert about 5% mortgages
Maximise your chance of approval with a specialist in bad credit mortgages
Typically, the bankruptcy must have been discharged for at least three years before you can get accepted for any type of mortgage.
Both can have advantages if you are applying for a mortgage as settling your debt will improve your debt-to-income ratio, which means you might be able to borrow more.
Putting down more deposit, however, could improve your loan-to-value ratio and increase your chances of securing a good deal.
This is a question to ask a mortgage broker as they can offer additional context about how each option and how it will increase the number of lenders, rates and deals available to you.
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