Looking for a Bad Credit Mortgage?

Many people believe that they can’t get a mortgage because they have a history of bad credit. While it’s true that some mortgage lenders prefer customers with a pristine credit report, the idea that having bad credit automatically disqualifies you from mortgage approval is a huge misconception.

Watch our video below for insight into how bad credit mortgage lenders assess eligibility and how you could still be considered for approval.

As you can see from the clip, it’s absolutely possible to get a mortgage with bad credit, and in this myth-busting guide, we go into more detail about which credit issues lenders will accept, how much deposit you’ll need, and how a specialist mortgage broker can boost your chances of success.

Plus in our FAQ section, we answer the questions we hear most often from customers who are looking for a bad credit mortgage.

What is a bad credit mortgage?

A bad credit mortgage is for borrowers with adverse credit, a poor credit score or low credit rating. Specialist providers will provide loans to bad credit applicants, although the rates and payments offered might be higher than for customers with clean credit. If you have enough income or a healthy deposit, it may be possible to find a competitive deal.

Specialists who sell niche financial products like this tend to be more flexible in their lending and decisions will be based on the age, severity and cause of the credit issue in question, as well as how likely they are to reoccur.

How to get a mortgage with bad credit

The key is finding the right mortgage lender, one who specialises in customers with your type of credit problem, fully understands it and is best positioned to lend under those circumstances. You can improve your chances by approaching a bad credit mortgage broker, as they can find you the best deals and mortgage providers to suit your needs.

Here are the steps to take when preparing for a bad credit mortgage application…

1. Get your credit reports

This should be your first port of call, as checking which credit issues are showing up on your Experian, Equifax and Callcredit reports will give you a good idea of the mortgage providers you’re able to approach. They’ll show your past loans, credit cards, overdrafts and even some utility bills. Remember, all three files can differ in terms of what they include, so it may be possible to find a favourable deal even if one or more of the agencies reports issues. By obtaining data from the three agencies, you can also make sure they’re up-to-date and challenge any potential mistakes.

2. Raise as much deposit as possible and carry out credit repair

Next, you should optimise your credit rating in preparation for your application, to minimise any risk your adverse might create. See the section titled ‘How to improve your credit rating for a mortgage’ for tips on how to do this. It may also be a good idea to raise as much extra deposit as you can at this stage, because putting down extra can also offset some of the risk involved in the deal.

3. Avoid multiple credit searches

Making multiple applications online or approaching a mainstream bank for a bad credit loan comes with the risk of being turned away. This is because not all customers with adverse are catered for, and having a number of ‘hard’ credit checks for a mortgage on your credit profile can further jeopardise your chances of getting approved.

4. Find a broker who specialises in bad credit mortgages

The best way for someone with a poor credit history to get a loan is through a broker with access to the whole market. That way, you can rest assured that the most favourable deals you’re eligible for will be within reach.

Here’s what you should look for in a broker…

• Whole of market & independent
• Reasonable and fair fee structure – they should only bill you on success
• Gives you access to direct deals
• Has exclusive products
• Has links with commercial finance
• Is whole-of-market for insurance
• Has years of experience
• Has plenty of happy customers

The advisors we work with have been hand-picked to ensure they have all of the above qualities, and they have a strong track record of finding the best deals for people with poor credit history.

Did you know… You could access 30% more of the mortgage market with a specialist Bad-Credit broker on your side – Get Started with an OMA-Expert to unlock more deals and increase your chance of mortgage approval.

How to apply

As we mentioned above, the best way to apply is through a whole-of-market broker. This way, you can be sure you have access to all of the best deals you’re eligible for.

Fees and charges

Typical charges may include…

• Arrangement fees
• Booking fees
• Valuation fees
• Legal fees
• Stamp Duty
• Early repayment charges and exit fees

You should note that you may not have to pay all of the above, as some lenders offer inclusive deals and things like Stamp Duty may not be payable in certain scenarios.

Bad credit borrowers should also bear in mind that the additional fees they’re asked to pay might be somewhat higher than a customer with pristine credit, but that doesn’t mean finding a favourable deal is impossible.

The table below shows a range of the latest UK mortgages from lenders considering applications where one or more applicants have bad credit. Updated as of August 2021

Mortgage amount £150,000, over 30 years

Credit issues that might be overlooked

Repossessions and bankruptcies are considered the most severe type of adverse credit you can have on your file, while things like missed phone bill payments are problems many providers may be willing to overlook.

Specialist providers often take a more flexible approach than those on the high street and can offer a lifeline to applicants with any of the following…

• No credit history
• Low credit score
• Late payments
• Missed mortgage payments
• Defaults
• CCJs
• IVAs
• Debt management plan mortgage
• Repossessions
• Bankruptcy
• Payday Loans
• Multiple credit problems

These providers often base their lending decision on the cause and severity of the adverse, the age of the credit issue, and how closely you meet their other eligibility and affordability requirements.

For example, if you are trying to get a mortgage with a CCJ, it’s more likely to be approved than a mortgage for an applicant with several credit issues.

Bad credit mortgage lenders

A wide range of lenders will offer bad credit mortgages, from high street banks to specialist mortgage providers. The thing to keep in mind is that the lenders you can approach and the interest rate you will end up with will likely depend on the age, severity and reason for your credit issues.

To give you a snapshot of the type of lenders that offer bad credit mortgages, we’ve put together the live tables below…

The tables above are accurate based on the market conditions in February 2020. Criteria can change at any time, so this information should only be used for example purposes.

For up-to-date figures and bespoke advice about which lenders you should consider, make an enquiry and we’ll introduce you to an expert bad credit mortgage broker for free.

How eligibility is assessed

There are two main things involved in eligibility assessments when bad/poor credit is a factor:

1. The type and severity of the issue – missed payments on bills or loans are given more leniency than more serious problems such as recent bankruptcy
2. The date it was registered – the older your adverse credit history, the better

Anyone who has experienced bankruptcy is unable to apply for a mortgage until they have been discharged (which usually takes around twelve months). Most firms will insist on a three or four year period following the bankruptcy discharge, as well as a good credit history during that time before they will consider a loan.

Similarly, interest rates for customers who have had a property repossessed within the last three years tend to be very high, but they should steadily decrease with every passing year. The longer the customer manages to maintain financial activity without incident, the lower the risk of lending.

Do high-street providers offer bad credit mortgages?

Not always, and the ones which do might offer you unfavourable rates.

The tables below will give you an idea of how likely you are to get a loan based on the type of credit issues you have and how long you might have to wait before pressing ahead.

Please note that these tables are for example purposes only and were correct at the time of creation (January 2020). Get in touch and an expert will go over any updates with you.

If you have any type of bad credit, the independent brokers we work with will search the entire market for the best deal based on your needs and circumstances.

Did you know… You could access 30% more of the mortgage market with a specialist Bad-Credit broker on your side – Get Started with an OMA-Expert to unlock more deals and increase your chance of mortgage approval.

Deposit requirements

The minimum deposit requirement for a residential property in the UK is 5% or 15% for a buy-to-let, but if you have adverse credit, some providers will only offer you a mortgage loan if you put down more deposit, depending on the age and severity of the issue.

For example, those with a repossession on their credit file may be able to get a property loan from specialist firms within 1–3 years if they put down a 25% deposit.

Those with an individual voluntary arrangement (IVA) will need between 10-25% deposit, depending on how long is left to run on the debt, and those with a bankruptcy will need between 15-25% in the first three years.

5 – 10% deposit

With the help of a specialist broker who has access to every provider, it may be possible to get an LTV (loan-to-value) between 90 and 95% with minor bad credit (some lenders will allow a mortgage with defaults if the default is for a mobile phone for example), as long as you meet the provider’s other eligibility requirements.

However, you might struggle to get a loan with severe adverse, such as bankruptcy or repossession, history as these issues usually call for a larger deposit amount to offset the risk, especially if they’re less than three years old.

That isn’t to say it’s impossible to get a great loan-to-value with these issues against your name, but specialist advice will be essential.

You might struggle more if you have severe adverse, such as a recent bankruptcy, repossession or IVA. The specialist banks and other niche agencies who offer products to borrowers with these credit issues usually need around 25% deposit, if the credit problem is less than three years old.

50% deposit

It may be possible to find a provider willing to offer you a 50% loan-to-value with bad credit, as a deposit this substantial will offset the risk involved in the deal.

You will still need to pass all of the standard eligibility and affordability checks, but a deposit of this size will certainly help your cause.

100% mortgage / no deposit

This will prove difficult as 100% mortgages are not typically offered to customers with bad credit, or anyone else, for that matter. One of the only ways to get a residential loan with no deposit whatsoever is by having a family member or close friend act as a guarantor.

With a bad credit guarantor mortgage (also known as bad credit family springboard products), the lender will secure the loan against a property your guarantor owns or against their savings, as this security can serve as an alternative to a deposit.

The process for securing this loan with bad credit is the same as applying for any other kind of property loan under these circumstances. If a provider considers you too high risk due to your adverse, having a guarantor is unlikely to change their mind on that.

Other factors that could affect eligibility

Although a provider will look at your credit history when assessing your application, they might also base their lending decision on the following variables…

• Your income and employment status:
  The more you earn, the more you could borrow, but how you make your money will also be of interest to the provider when they’re calculating the size of your mortgage. A specialist provider might be needed if you’re self-employed or are hoping to get a mortgage based on bonuses, overtime or commission. Furthermore, there are specialist lenders for customers who are looking for a mortgage on low income.
• Your age:
  Some providers won’t cater for borrowers over 75, others 85 and a minority will lend with no upper age limit, as long as they’re confident the borrower will be capable of repaying their loan debt in retirement.
• Your outgoings:
  Other significant outgoings (such as outstanding loans or dependent children) may affect the amount you’re able to borrow.
• The property type:
  Properties with non-standard construction (i.e. thatched roof, timber frame, etc) might require a specialist.

Remortgages and bad credit

Bad credit remortgages can be harder to arrange, and while you won’t typically be offered the same competitive rates as someone with cleaner credit, this doesn’t mean that you should settle for less.

It may be possible to remortgage with a variety of previous bad credit on your credit file, including, mortgage arrears, IVAs, defaults and CCJs.

For more information on how to remortgage with bad credit, have a look through our in-depth guide on the subject or make an enquiry to speak with an expert on remortgaging with bad credit.

Remortgaging to clear off debts with bad credit

As mentioned above, bad credit remortgages can be harder to arrange and you may not be offered the same competitive rates as someone with cleaner credit but it may still be possible to remortgage to pay off debts even with bad credit on your file.

Get matched with a bad credit mortgage expert today

If you have bad credit of any kind, getting a mortgage can be more difficult and the consequences of approaching the wrong lender or being declined can be more severe. But the good news is that bad credit doesn’t mean you can’t get a good deal, and help is out there.

The right mortgage broker could help you get onto the property ladder despite your credit issues, and the rates they help you secure might even surprise you. We offer a free broker-matching service that can find the right broker for you by assessing your needs and circumstances and pairing them with an advisor who has the expertise you need.

Call 0808 189 2301 or make an enquiry online and we’ll set up a free, no-obligation chat between you and your ideal bad credit mortgage broker today.

Did you know… You could access 30% more of the mortgage market with a specialist Bad-Credit broker on your side – Get Started with an OMA-Expert to unlock more deals and increase your chance of mortgage approval.