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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 5th May 2021*

It can be difficult, but there are ways to get 95 percent loan-to-value (LTV) mortgages with bad credit, and this guide explains how it can be done.

The following topics are covered below…

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Can you get a 95% LTV mortgage with bad credit?

It’s difficult, but not impossible. The majority of mortgage providers will turn you down if you have bad credit and only 5% deposit to put down because they’d consider lending under these circumstances too risky. Bad credit mortgages usually call for a higher deposit to offset the risk, so options will obviously be limited if you have adverse credit and a low deposit.

Limited, sure, but by no means non-existent. While high street or mainstream lenders might reject you for finance outright, specialist bad credit mortgage lenders have the flexibility to take the overall strength of your application into account before making a final decision.

Which credit issues will lenders overlook?

Some forms of bad credit are considered more severe than others and, under the right circumstances, it may be possible to get a 95% LTV mortgage with these credit issues:

  • No credit history
  • Low credit score
  • Late payments
  • Arrears
  • Unauthorised overdraft charges

The above types of bad credit are not considered “severe” by most lenders who have a flexible stance on adverse. These specialist mortgage providers might also be willing to take the age and severity of your bad credit into account before finalising their lending decision.

If your bad credit is more serious (e.g. debt management plans, county court judgements, missed mortgage payments), there are government schemes, specialist mortgage products and expert bad credit brokers who could still help you get approved with 5% deposit.

Can you get a 95% mortgage with severe bad credit?

This is more difficult as the more severe your bad credit, the more deposit you’d usually need to put down. This means that people with issues such as bankruptcies, repossessions and multiple credit problems typically need a deposit of at least 30% to be approved.

The following credit issues are classed as either “severe” or “very severe” by most mortgage lenders and you might struggle to meet their criteria with only 5% deposit…

  • Missed mortgage payments
  • Default payment
  • County court judgements
  • Debt management schemes
  • Individual voluntary arrangements
  • Bankruptcy
  • Repossession
  • Multiple credit problems

Can you get a 95% LTV mortgage with satisfied defaults?

If the default has been satisfied and you use a specialist bad credit mortgage broker, your chances will improve considerably. Provided you’re buying a standard residential home, borrowing at 95% LTV might not be out of the question, depending on how long ago your default was. Unsatisfied defaults usually call for at least 10-15% deposit, though.

Lenders typically consider defaults to be the same severity as missed mortgage payments, county court judgements, debt management plans and individual voluntary arrangements.

What about discharged bankruptcies?

A bankruptcy would usually need to have been discharged for at least three to four years before you can get a mortgage at all, and even then, you’d need 30-40% deposit. If you only have 5% deposit to your name and a bankruptcy on your file, seeking professional advice is vital. A broker who specialises in bad credit mortgages can tell you how long you’d need to wait to apply, and if delaying things isn’t an option, they can help you explore possible workaround solutions.

How to get a 5% deposit mortgage with bad credit

These days, there are several different ways to get a 95% LTV mortgage with bad credit and we’ve outlined them in this section. But first, here are some steps you should take to boost your chances of approval and minimise the risk your credit history might pose.

  • Optimise your credit report: First, download all of your credit reports as it’s essential they’re fully accurate and up to date. If you have adverse credit it’s important to take every step you can to optimise your credit file ahead of your application, so challenge any inaccuracies and make sure they’re corrected before you approach a lender.
  • Join the electoral roll and settle debts: If you haven’t already joined the electoral register, it’s worth doing so before applying for a mortgage. It’s quick and easy to do online and can boost your creditworthiness. Moreover, settling any debts you’re in a position to pay off can also strengthen your profile. If you have multiple debts, seek professional advice about whether it’s worth consolidating them.
  • Find a bad credit mortgage broker: This is highly recommended if you’re applying for a mortgage with just 5% deposit and bad credit on your file. The chances of rejection are high, but with the right broker on your side, they can improve dramatically. A broker who specialises in bad credit will know exactly which lenders to approach for a customer with your specific credit problem(s) and deposit amount.

Next, take a read through some of the different ways to get a bad credit mortgage with a 5% deposit that we’ve outlined below. A specialist bad credit mortgage broker can advise you on which path to choose based on your needs, circumstances and credit history.

Bad credit mortgages through the mortgage guarantee scheme

A handful of the UK’s leading banks are offering 95% LTV mortgages under the government’s 2021 guarantee scheme, but approval can be difficult to secure if you have bad credit. Mainstream lenders tend to be the least accepting of adverse credit, and if they don’t decline you outright because of it, the risk of being hit with unfavourable rates is high.

That said, several of the lenders supporting the scheme at launch accept some forms of bad credit under the terms of their general eligibility criteria. Since the government is helping to offset some of the risk with mortgages offered under this scheme by ‘guaranteeing’ a portion of the loan, it may be possible to get a favourable deal with only 5% deposit, depending on the severity, age (the older the better) and reason for your credit problems.

Given that the chances of rejection or being slapped with hefty rates are high and the number of approachable lenders is small, seeking professional advice from a bad credit mortgage broker is recommended. They will be able to match your credit profile with the guarantee scheme lender who’s most willing to accept it at the lowest interest rate.

For more information see our complete guide to the mortgage guarantee scheme.

Help to Buy mortgages with bad credit

There’s an important distinction to make between 95% LTV mortgages and 5% deposit mortgages. While you need a 5% deposit to get a 95% LTV mortgage, there are ways to get onto the property ladder with this deposit amount and more equity. A Help to Buy equity loan is one of them, and in some circumstances, it’s possible to get one with bad credit.

Most mortgage lenders prefer customers who are applying through the Help to Buy scheme to have good credit, but others are more flexible and might be willing to consider applicants with certain types of adverse credit. Again, your chances of approval are likely to hinge on the age, severity and reason for your bad credit. Moreover, a mortgage broker who specialises in bad credit and Help to Buy could help tip the odds in your favour.

See our guide to bad credit Help to Buy mortgages for more information.

Shared Ownership mortgages with bad credit

Another way to get a bad credit mortgage with only 5% deposit is through the Shared Ownership scheme, which could be an option if you don’t mind the idea of co-owning a property with a local housing association or council, and paying them rent on their share.

It’s absolutely possible to get a Shared Ownership mortgage with 5% deposit, and even no deposit at all under the right circumstances; but if you have bad credit on top of that, the number of approachable lenders will be far fewer. With the help of the right broker, though, it could be possible to secure the mortgage you need on these terms.

See our guide to bad credit Shared Ownership mortgages for more information.

Bad credit guarantor mortgages

If you have a blood relative who’s willing to help you get onto the property ladder, a guarantor mortgage could offer you a path to it with bad credit and a small deposit. Guarantors are asked to secure the mortgage against either a property they own and hold equity in, or place money into a savings account held by the mortgage lender.

Provided your guarantor is able to put up enough security, having only 5% deposit to contribute yourself (or even none at all) is unlikely to be an issue. What’s more, as long as your bad credit isn’t severe enough to prevent you from meeting the lender’s general eligibility criteria and your guarantor has clean credit, this shouldn’t be a deal-breaker either.

See our complete guide to guarantor mortgages for more information.

New 95% LTV mortgages

95% LTV mortgages for people with bad credit virtually disappeared during the coronavirus pandemic as lenders feared they’d be too risky during the current financial climate. But the market bounced back quickly from the effects of the first national lockdown, and following the announcement of the mortgage guarantee scheme, a string of lenders have announced their own 95% LTV mortgage products and made them available outside of it.

Some of these new 5% deposit mortgages are only available through brokers, which emphasises the value of talking to the right mortgage advisor before you apply. They’re also subject to each lender’s general eligibility criteria, which means it could be possible to secure one with bad credit, depending on the exact nature of your credit issues.

One thing to bear in mind, though: these products tend to come with high interest rates due to the level of risk, and this is especially true if you have bad credit. Upwards of 4% interest is not uncommon, but the right broker can make sure you aren’t paying over the odds.

What are the best options for first-time buyers?

There are a few potential options when it comes to 95% LTV mortgages for first-time buyers with bad credit, as many of the low deposit schemes are aimed at this demographic.

The latest incarnation of Help to Buy (2021-23) is exclusive to first-time buyers as are some of the new 95% LTV mortgage products that are available outside of the 2021 guarantee scheme. Moreover, the guarantee scheme is open to first-time buyers and home-movers.

So, basically, all of the options listed in the section above are potentially viable for first-time buyers, but which one to choose is a question you should put to a mortgage broker. The answer will depend on factors including how bad your credit is, whether you have a close relative who’s willing to support you, and the overall strength of your application.

A broker can go through each of the available options with you in detail, advise you on which one to choose and make sure you get the best possible deal when you apply.

Speak to an expert about getting a 95% LTV mortgage with bad credit

If you’re applying for a mortgage with any type of bad credit and only 5% deposit to put down, the risk of rejection or being hit with unfavourable rates is high. But there’s a way you can boost your chances of not only mortgage approval, but landing a great deal, too.

The right mortgage broker can make sure you end up with the best mortgage for your needs and circumstances, whether that’s a bad credit mortgage with Help to Buy, a deal via the new mortgage guarantee scheme or a guarantor mortgage to help offset the risk.

We’ve made it our mission to help people find their ideal mortgage broker, and we offer a free matching service that will pair you up with an expert who specialises in bad credit and low deposit mortgages. They will make sure you find the best lender first time, offer you bespoke advice every step of the way and even help you with all of that pesky paperwork.

Call 0808 189 2301 or make an enquiry and we’ll set up a free, no-obligation chat between you and a bad credit mortgage broker who helps people like you every day.

Updated: 5th May 2021
OnlineMortgageAdvisor 2021 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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