Bad credit mortgage rates
Published 7th February 2018
What are the current mortgage rates for bad credit borrowers? (For 2017)
Average mortgage rates for people with bad credit can vary drastically depending on several key factors - mostly to do with what the adverse event(s) are, and the overall profile / application. The rest of this article goes into more detail about how eligibility for different rates and lenders is determined, and the list includes:
- Market rates in general (lender appetite and competition)
- The amount you borrow vs the property value (loan to value, LTV)
- The type of adverse credit issue
- The number of credit issues
- The date the issues were registered on your credit file.
- Whether the issues are settled or still outstanding.
- The strength of the overall profile and application
A quick look at the latest table-topping mortgage rates from the whole market:
Want to know specifically which are your best bad credit mortgage rates today? Without an assessment of your situation it's impossible to tell, so please make an enquiry and one of the specialists will process it all for you:
1. Lender appetite for adverse credit mortgages:
The bad credit mortgage market has seen huge growth over the last 2 years, with numerous new lenders with deeper pockets now considering more and more borrowers who've had issues either recent or historic. This increased competition has lead to a) more people being able to obtain credit with more serious issues, b) a higher number of products available, and c) lower bad credit mortgage interest rates across the board.
If you compare bad credit mortgages across the U.K. today against those available 2 years ago, the difference is startling. Not only can borrowers with unlimited CCJs or a recently discharged bankruptcy get approved at far higher loan to values, the best bad credit mortgage rates are actually incredibly competitive. Often borrowers with light adverse credit can obtain an interest rate similar to that on the high street, and some with more severe issues are still able to find surprising low interest rates with the right lenders.
Q. Who are the best lenders for bad credit mortgages?
A. Mainstream borrowers all want the best mortgages, and those with a bad credit rating should be no different.
Its important to remember that the "best" entirely depends on individual circumstances, and the best lender for one borrower will likely not be the best for someone else. It's the same for those with clean credit who perhaps has something les ordinary about their application, such as their income coming from self-employment or a new job in probation - Every lender is different in who they do and don't accept, so it's essential to establish the exact details of any credit issues before approaching any one lender.
Keep in mind that unless you search and check with every lender in the entire market (either when trying to arrange the mortgage yourself, or via a broker) you may miss out on the best rates. This is how it should be done, yet sadly when sourcing mortgage rates for borrowers with bad credit history, many brokers just approach the first lender they've heard of rather than taking the time to start at those with the best rates and work down the list. Without this approach, how can you be sure there isn't a better deal out there?
We have more info on finding the best banks for mortgages with bad credit in the bad credit mortgage lenders section of our adverse credit overview here.
2. The amount you borrow vs the property value (loan to value, LTV)
Put simply, the LTV is the size of the loan compared to the value of the property, usually expressed as a % (e.g. 75k loan and 100k property = 75% LTV). Lenders will always assess an applicants level of risk to determine the chances they'll get their money back if the borrower defaulted, and LTV is a huge part of this as it determines the amount of 'security' the lender has over the loan. There's far more chance of recouping the money lent to borrowers with greater deposit / equity, so they are deemed less risk than those borrowing the maximum against the property. It makes sense then, that more risky an applicant appears (be it through bad credit or unique income for example) the greater the equity/deposit required.
The impact LTV has on mainstream or 'prime lending' mortgage interest rates can be seen when you compare products across the LTV bands (which are usually in 5% LTV increments), where rates will be far lower under 65% LTV than at 95%, often to margins of 4-5%.
Increase the risk further and you find the mortgage interest rates for bad credit customers have higher margins at each LTV band. Although rates have come down in recent months as mentioned above, typical mortgage rates for bad credit customers are likely to range from 1-4% higher than prime lending mortgage rates in today's market.
3. The type of adverse credit issue
Q. Are there any bad credit mortgage calculators?
A. Every lender is different in who they do and don't accept, and the lending policy can be strict and vary wildly, so if you're searching for a bad credit mortgage rate calculator you may as well stop now - lenders, professional mortgage tech companies, packagers and brokers all use similar engines to source the best deal for customers, and they all try to provide a clear guideline even using Defacto data, but the one thing they all lack is accurate criteria. It's the reason mortgage specialists like those we work with exist.
The impact on your chances of approval, and thus the bad credit mortgage interest rates you'll qualify for, usually the increases with the severity of the credit issues you've had, often in an order similar to the following (less - more severe):
- No credit history (less impact on rate)
- Low credit score
- Late payments
- Mortgage Arrears
- Defaults / CCJs
- Debt management plans
- IVAs / Bankruptcy / Repossession (biggest impact on rate)
- See also impact of payday loans later in this article
4. The number of credit issues you have
Another key factor in calculating mortgage rates for bad credit customers is the total number of credit issues registered against the applicants' credit file. It kind of goes without saying, someone who has shown to miss multiple payments over a long period of time will be considered far more risky than someone who has had one bad credit after a life event (i.e. Break up / redundancy etc). This will therefore usually require a) greater deposit, and b) come with a higher interest rate.
5. The date the issues were registered on your credit file
Along with the above, the date any credit issues are registered can play a huge part in approval for different mortgage rates. If a borrower has just had defaults
There does come a time when borrowers qualify for the best U.K. mortgage rates despite bad credit history, and this is generally accepted as being when the issues fall off the credit report (6 years after they are registered). There are a couple of exceptions to this rule:
- Some lenders will never consider certain types of issue, for example Santander reject all borrowers who've ever had a bankruptcy.
- Others high street lenders accept certain issues sooner than 6 years, and it's not well publicised that several consider bankruptcy customers after just 3 years of discharge.
Establishing exactly when you'll qualify for prime mortgage rates over sub prime mortgage rates is extremely difficult, even for experienced brokers, as the lending policy can and does change on a daily basis. Understanding the entire market, and knowing who to approach day by day is the key to getting a client the lowest mortgage rates with bad credit possible. Using a broker who works in this market everyday can mean the difference between a much higher rate or a high street deal, which can result in thousands of pounds in extra costs spent on fees and interest over the term when you compare bad credit mortgage rates against the table toppers.
6. Whether the issues are settled or still outstanding
If you've had arrears, defaults, CCJs a debt management plan or even an IVA, whether you've settled your debts and are up to date can have significant impact on the rates you'll qualify for. This is because many lenders consider the debt active and will only begin to discount it in lending decisions once its been settled - with these lenders the borrower would be required to wait longer before making an application. Thankfully, the specialist lenders offering the best adverse credit mortgages will ignore settlement completely and are only interested in when it was registered - if the borrower has had good account conduct since (not always needed with the super specialist bad credit lenders!), then whether a debt is settled or not has no impact on the decision or the interest rate offered.
The main exception to this is for bankruptcy and repossession, when many lenders (but again, not all) will assess based on discharge dates, and require any legacy debts that were not written off to be repaid before application.
7. Your overall profile and strength of application
Your overall application profile can impact the mortgage rate you qualify for because approval isn't simply about credit issues, plenty of other factors are in play even for those with 999 credit scores who have never missed a payment. These include:
- Having no credit history at all (never used any form of credit)
- loan to value
- debt to income ratio
- % use of available credit
- loan to income ratio
- Work history (A new job, short time self-employment, irregular income or an unstable industry sector increases risk)
- Address history (having Multiple addresses in the last 3-6 years increases risk)
- Registration on the voters roll
- Age of applicants and lending into retirement
- Repayment type and affordable term
- And many many others...
Other frequently asked questions
Q.What if my credit file is clear but I'm still being declined for a mortgage?
A. Being declined and not having a clue as to why is one of the most difficult and frustrating positions a borrower can be in. This often happens when issues are registered unbeknownst to the applicant, that can be found on one or all of the credit files. Occasionally however, those declined with a completely clean set of credit files (more on multiple credit files here), can be found scratching their heads, and they'd be forgiven for wondering why.
More often than not this is due to a credit score not reaching the lenders pass-rate, which could be caused by a number of issues to do with the application as outlined in the list above. This is common for younger first time buyers, whom sadly once declined are often ill advised to turn straight toward first home mortgage rates specifically for those with bad credit, when actually there may be several high street lenders worth approaching first that may offer prime lending mortgage rates today, instead of forcing the borrower to wait or proceed on higher rates.
Anyone seeking mortgage rates for bad or low credit scores like this should first have an expert review their reports and overall application, as there may be one or two tweaks to your situation that can be made to tip you into being eligible on the high street. If not, there may still be mileage in applying to the right table-topping lender at the right time, as they all change their pass rates on a regular basis to leverage supply and demand, and on a good day the same declined borrower can get approved with a lender that on the wrong day would have declined.
Specialist bad credit lenders should really only be approached once it is clear the application won't be approved on the high street. That said, it makes every specialist cringe when customers and inexperienced brokers go round applying with every lender they can find, as multiple credit searches in a short space of time can harm the chance of approval with the next lender. It's always always always best to do your homework first and give yourself the best chance by approaching the right lender first time.
Q. How will using payday loans impact my mortgage rate?
This is a tricky one. Technically using payday loans isn't classed as adverse credit, however almost every lender in the market will consider those using them as being unable to manage their finances effectively, which is often a bigger negative than adverse credit itself. Our article on payday loans here covers use of these loans at length and explains why, despite popular belief and some poorly researched info elsewhere online, they should be avoided at all costs!
In general if you've used a payday loan in the last 3-4 years there's a few things that may happen:
A) If clean credit and not heavy use
If you have an otherwise clean credit file, you may be able to obtain close to high street rates with the right lender, provided use is not heavy and you aren't reliant on them, especially if you haven't used any for over 12 months.
B) If clean credit and heavy use
If you are heavily reliant on them, you may be declined whatever you do, even if you have clean credit, and will likely need to be clear and surviving comfortably without them for at least 6-12months (still a couple of lenders who may consider at a decent LTV i.e. Not usually 95%).
C) If adverse credit and heavy use
If you have used them in the last 6-12 months and have other adverse credit issues, you'll really struggle and will only have a handful of lenders to consider you - As a result your rate is likely to be far higher.
Q. I'm new to mortgages - What are bad credit mortgage rates?
A. Bad credit mortgages are offered by lenders accepting borrowers who have had credit issues in the past. Typically the lenders offer the same rates to all applicants, who either qualify or don't, although there are some lenders that offer 'cascading' products based on rate-for-risk, where more risky and heavy adverse issues are charged higher rates.
If you want to know more about this, or establish which you qualify for, make an enquiry and one of the specialists will be in touch to run through it with you.
Remortgage rates with bad credit
Q. What are the best remortgage deals for bad credit borrowers?
A. The advice for those remortgaging with bad credit can differ to advice for those purchasing, and is based on slightly different lending criteria. LTV limits vary, as well as acceptable adverse issue (borrowing to repay recent or current mortgage arrears or even to annul a bankruptcy, can be approved for example), loan to income ratios, and overall affordability (which can be far more generous on secured loans, with some offering in excess of 10x annual income when compared to 3-4x for most bad credit first charge lenders).
Like for like refinance mortgage rates for bad credit customers may be similar to purchase rates, and often come with cheap or free valuation and legal fees, but really anyone looking to raise additional funds should expect the rates to change depending on the reason for the loan, and the total LTV, as well as the credit profile.
Also, anyone looking to refinance their home to raise capital for something, such as to consolidate debt or for home improvements, would be well advised to look at mortgage rates for bad credit home loans (aka second charges or secured loans). This is especially true if your current mortgage is on a fantastic rate you don't want to lose, or perhaps if you're one of those borrowers trapped on an interest only mortgage, needing to borrow additional funds and can't afford to switch to a full repayment basis.
2nd charge mortgage rates for bad credit borrowers can actually be far more competitive than many think, with rates often close to that if main residential mortgages, and often they are worth considering if you are declined by a mortgage lender as the criteria is less restrictive and you can get away with more severe issues.
Bad credit mortgages overseas
Q.What if I have adverse credit and live overseas?
If you're looking to buy overseas then you'll need to find a broker who understands the international market, as mortgage lending from the U.K. needs to be secured on a property in the U.K.
If you're an expatriate looking to buy in the U.K. either as a buy to let investment or are returning home and want the best mortgage rates, the uk bad credit market can be an even more difficult place to find the right finance, as most bad credit lenders require you to have lived in the country for a minimum of 3 years. There are one or two who may consider less than this by exception, but it really depends on the details in your credit file, and the likelihood is you'll need an even stronger application than had you had more time in the country (stable income / more deposit etc).