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Joint mortgage with one bad credit applicant

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By Pete Mugleston   Mortgage Advisor

Last updated: 22nd August 2018

We’re regularly asked, can I get a mortgage if my partner has bad credit? We’re also asked if it’s possible to apply in sole name mortgage when one partner has bad credit. There are a whole host of questions and different variations as people have such different circumstances, so we aim to cover as many of them as possible in this article:

Thankfully, with the right advice and the help and knowledge of the specialist mortgage brokers that work with us, there are lenders that may consider husband and wife credit scores for a mortgage , even if a partner or spouse has a less than perfect credit history, either in a joint or sole application.

What types of bad credit can cause issues for joint and single mortgages?

There are many types of bad credit which can cause issues for joint and single borrower’s obtaining a mortgage, either in joint names or on their own that may affect their joint mortgage credit rating. With today’s ever increasing financial pressures on our income, credit issues are sometimes unavoidable and often down to circumstances beyond our control, but you could still get a joint mortgage if one has bad credit.

Perhaps you are now or have historically experienced one of the following:

  • Late payments
  • Defaults
  • Joint mortgage with default
  • CCJs
  • DMP
  • IVA
  • Bankruptcy
  • Repossessions

In the case of a bad credit history, the lender will need more detailed information. For example –

  • What is the type of the credit issue?
  • What type of account/ debt the issue was relating to (loan, card, mortgage etc)
  • Why did it occur and was it a one off?
  • How long ago did it happen?
  • How much was the debt for?
  • Whether or not the debt has been repaid or a repayment plan is in place.

Alongside this, most mortgage lenders will want to know certain things before a decision to lend can be made. This would normally include:

  • Marital status (single or married),
  • How old the applicants are.
  • Term of the mortgage.
  • Will it be in single or joint names?
  • First time buyers or homeowners.
  • Are applicants employed or self-employed.
  • The level and type of income.
  • The amount of any outstanding credit commitments.
  • Amount of deposit.
  • The applicants credit history.

Let’s now consider in more detail the issues listed above, and how they can impact lending decisions for single and joint applications, such as getting a joint mortgage with bad credit.

Joint mortgages and Late payments

Late payments can occur for a variety of reasons, perhaps missing a payment on a credit agreement or loan, credit card, mobile phone or a utility bill. The lender may want an explanation as to why it happened and will look to see if this is a regular occurrence or just a one off.

Late payments indicate that a borrower is struggling to manage their finances and keep up with payments, the more frequent and recent these are, the higher the risk. Some lenders require a completely clean history for the last 6 years, others the last 3, some 2, some 12 months, and there are some happy to consider applications where the borrower is currently behind on payments.

Typically lenders will have products available to the borrower from a 10% deposit, but some will consider lending up to 95% depending on your circumstances.

Joint mortgages and Defaults

The borrower is deemed to be in default when they have failed to keep up repayments on a credit agreement and the lender considers the relationship at an end.  This is often after 6 months of unpaid payments but can happen at any time.

If a mortgage applicant has defaults, some lenders accept them whether they are repaid (satisfied) or not. The main criteria lenders want to know is:

  • The date when they occurred/were registered (if more recent then considered higher risk. Some lenders want a clean history for 3 or 4 years, others are happy to consider defaults registered as recently as this month!)
  • The type of account the default was on (If the default occurred on an unsecured credit agreement like a credit card, or on a secured agreement like a mortgage or secured loan. Secured defaults are considered much more serious and thus higher risk).
  • The £ amount of the default - (Some lenders impose a limit on the amount of the default to a maximum of say £150 for example, where others have no limit).
  • The amount of equity/deposit (The more recent or severe, the more deposit it required. Currently it’s possible to get approved with defaults up to 95% LTV, depending on the type and registration date.

Joint mortgages and County Court Judgments (CCJ)

CCJs are issued by the courts to persons who have failed to keep up payments on an agreement. A plan is usually put in place detailing how the borrower is to repay the monies owed. In terms of applying for a new mortgage some lenders are happy to consider applicants with county court judgements but typically they will want to know:

  • How long ago it was registered.
  • Why it happened.
  • How many CCJs there were,
  • The £ size of the CCJs registered.
  • Have they been satisfied or not.

Every lender is different in what they do and don’t accept -  Some lenders will be happy to accept say, up to two satisfied county court judgements so long as there have been none in the last three months, but impose a limit in terms of the debt owed to say a maximum of £150 or £3000 for example, whereas other lenders have no limit on the £ amount and don’t care if they are satisfied or not, but stipulate none are registered in the last 24 months.

Deposit can vary lender to lender, some require much larger deposits than others, for instance, some lenders only consider borrowers with CCJs if they have 25%, some 15%, and there are some specialists happy to lend up to 95%, depending on the circumstances.

Good news is, we work with the experts who successfully arrange mortgages for people who have had CCJs on a daily basis, so make an enquiry and they’ll let you know how much deposit you need.

Joint mortgages and Debt Management Plans (DMP)

Here an agreement has been made between the borrower and their unsecured creditors to pay all of the outstanding debt by making a regular affordable payment until the debt is cleared. This can be arranged by the individual, but is usually conducted by a debt firm or charity/organisation. Some lenders will accept active DMP’s with a minimum deposit of 5%, depending on the circumstances. The main information required is:

  • The start date of the DMP
  • How payments have been made to date
  • The size and number of creditors in the DMP

With a lot of accepting lenders, the DMP does not need to be repaid when the new mortgage is completed. Lenders will generally treat DMP payments as a monthly commitment and as such will include them in the affordability calculations. In the majority of cases the DMP must have been in place for a period of at least twelve months and the lender will require proof of payments. Normally twelve months’ worth of bank statements is acceptable evidence, although some lenders want to see official DMP statements if conducted via a debt company / organisation.

Joint mortgages and Individual Voluntary Arrangements (IVA)

An IVA is a formal arrangement between the person and their creditors to repay a percentage of the total outstanding debt over a period of time at an affordable amount. In the case of applying for a new mortgage it is important to note that the IVA stays on a person’s credit file for a period of six years from the date it is registered. This can be significant in the case of applying for a new mortgage as some lenders will insist that there is a period of three years after the IVA has been satisfied, whilst some lenders can accept current IVA’s. Depending on your circumstances, when the IVA was registered, satisfied, and if the payment conduct is acceptable, a deposit of between 15% and 35% will normally be required.

Going bankrupt with a joint mortgage

A bankruptcy is the result of a court issuing a bankruptcy order where the individual doesn’t have enough money or assets to pay off all outstanding debts. In terms of applying for a new mortgage after bankruptcy lenders will want to know:

  • How long the person has been discharged from bankruptcy (Usually you are discharged twelve months after the court made you bankrupt. Some lenders will consider the application but will require that you have been discharged for a minimum of one year.
    Others will require a longer period of say six years).
  • Your credit record following bankruptcy will also need to show a good payment record.
  • How much the bankruptcy was for.
  • Are there any restrictions after the bankruptcy?
  • What the reason for the bankruptcy was.

Typically, lenders will require the borrower to have between a 5-35% deposit depending on how long it has been since the bankruptcy was discharged.

Joint mortgage payment problems and repossessions

A repossession is when a mortgage company takes back the property if the borrower is unable to meet the mortgage payments for longer than is acceptable.  Having had a property repossessed doesn’t necessarily mean that you won’t be able to obtain a new mortgage in the future. The lender will want to know:

  • How long ago the repossession occurred (Typically lenders will want a period of between two to three years after repossession before a person can apply for a new mortgage, however there are some lenders considering less than this in the right circumstances)
  • What were the circumstances?
  • Was it the person’s main residence or as part of a property portfolio?
  • Is there a shortfall on the loan / are there any legacy repayments still to make? (generally lenders require there to be no shortfall following repossession, or at least there has to be a repayment plan for the shortfall in place.

Typically lenders will offer a range of mortgage products depending on the time since the repossession, ranging up to 5% deposit for more historical events.

Can I get a mortgage with bad credit if my partner has good credit?

How two applicants are treated in regard to a joint mortgage application where one has bad credit can vary lender to lender, as they each have a different policy on what is acceptable, both in terms of the adverse credit event, and also in terms of whether they’ll accept an application from just one of the two.

We are often asked, when applying for a joint mortgage, whose credit score is used? Typically, most lenders will want both applicants to be on the application, and will judge based on the worst credit profile. This means that if one person has a good credit score but one has bad credit the perfect credit record is often trumped by the poor credit.

It’s important to know the difference between “credit score” and “credit search”.

Most high-street lenders will perform a credit check for a joint mortgage and will score the mortgage application jointly, so borrowers must meet a joint credit score needed for the mortgage to be approved. Some however, don’t apply a joint mortgage credit score. They will search the applicants’ credit history and look for issues that fall outside of their policy – if there are none then it’s accepted.

Examples:

So, for instance, if there are defaults registered in the last 3 years, they decline, but if registered over 3 years ago, they’ll accept. Some lenders say 5 years, some 4, some 2, some say 6 months! Some have limitations on the number of defaults, others on the £ amount they were for etc.

Although it’s true that joint credit “scores” can improve if one applicant has a perfect score, most types of recent credit issue are likely to cause a decline with most high street lenders.

Getting a joint mortgage when both applicants have bad credit

If applying for a joint mortgage and both applicants have bad credit records as we have looked at previously, the lender will want to make a full assessment of the individual’s circumstances. Here they will look at the ‘worst case scenario’ when making a decision to lend but will add up all adverse credit events for the case to ensure that as a whole, it meets their policy.

For example, if applicant one has had some late payments and applicant two has had a county court judgement registered against them, then the lender will assess the case and apply their underwriting criteria based on BOTH of the adverse credit events on the case. If they accept the CCJ but not the late payments as they were too recent, then the case would be declined.

Credit Score

A lender will first assess whether you are considered a ‘good risk’ or not and that you will be able to repay what you borrowed. There is a difference between credit score and credit search. To determine an applicant’s credit score they will look at your credit report and will add points for each piece of information included in it. They will then calculate the overall points total to give you a credit score. If the score fits with their lending criteria, then a decision to lend is made. There is no universal score and decisions vary from lender to lender so it’s worth speaking to a specialist broker who can guide you through the process and gain the best options for you.

Credit Search

Sometimes known as a credit check this is where a lender will look at your credit report to find out about your credit history. There are typically two types of credit searches that lenders use. These are called ‘soft search’ and ‘hard search’.

A soft search for example is where the lender will carry out an initial check on your credit file but not see all of the report. The advantage of doing this is that it doesn’t record a search on your credit file and therefore won’t leave a negative impact. Only you can see the search if you obtain a copy of your credit file.

A hard search is a full search of your credit file and will be noted on your credit report. It will be visible to all parties including any lenders that you approach for credit and yourself. It can have a negative impact on your credit score if you were to make multiple applications for credit say over a short period of time.

Can joint married applicants apply in sole names

Most mortgage lenders require married applicants to apply in joint names and combine husband and wife credit scores for a mortgage, which makes it tricky for those where one applicant is clean credit and would otherwise get a high street deal were it not for the second applicant. This also applies if applying for a mortgage where the wife has no credit, or a mortgage where the husband bad credit.

Thankfully, some lenders will accept a mortgage application in a sole name where the applicant is married and the spouse will be living at the property, so long as it is deemed affordable in that one applicant’s name. However they will need to know that the reason for doing so is fully justified. It could be that the couple wish to keep their financial affairs separate. Perhaps they have remarried and wish to keep the mortgage separate.  In each case the lender will assess the case individually and will want to carry out an affordability check based purely on the sole applicant’s income and expenditure as well as any financial commitments they may have.

Adding a partner with bad credit to a mortgage

Generally lenders are happy to consider an application to add a partner to an existing mortgage, this is typically considered a remortgage and also transfer of equity (into the joint names, if this is the case). For this reason, the lender will request full information regarding the individuals’ circumstances, for example credit history, employment status, age etc.

If there is a history of adverse credit it can make things a little more tricky, as it may be your current lender declines to add your partner to the mortgage.

Below is a list of potential credit issues you may be faced with as a borrower if you’ve ever experienced any of these:

  •  Adverse credit overview
  • Low credit score
  • Mortgage Arrears
  • Defaults
  • County Court Judgements (CCJs)
  • Individual Voluntary Arrangements (IVAs)
  • Debt Management Plans (DMPs)
  • Bankruptcy
  • Repossession

Thankfully, some lenders will consider adding your partner or spouse even if they have a bad credit record to a mortgage, depending on the main factors:

  • What the adverse credit is
  • When it was registered
  • How much it was for (in £)
  • Has it been satisfied or not.
  • What level of equity is in the property (loan to value)

To add someone to a mortgage there are usually additional costs involved, such as solicitors’ fees to conduct the transfer of equity into joint names, register the new partner at land registry and lender administration fees. In the case of a remortgage there may also be valuation, arrangement fees, other conveyancing costs and any redemption penalties from the existing lender to consider.

Getting a Mortgage when my partner has no credit

Having no credit at all is at times damaging to an applicants’ credit score, as having never borrowed, lenders have no way of assessing payment conduct to establish whether they are a good borrower or not!

As mentioned above, some lenders will use “credit scoring” when considering a mortgage application, and others use a “credit search” model. Often when a borrower has no credit and fails a lenders’ “score” it’s useful to remember that lenders have no score to pass, so long as the details of their credit profile matches the lending policy. In the case of getting a mortgage where a partner has little or no credit it may be necessary to choose a lender that adopts a credit search approach.

Thankfully, the specialist mortgage brokers that work with us fully understand the different lenders underwriting criteria and are best placed to match you with the best lenders.

A mortgage with a partner bad credit – can I leave them off the mortgage?

Normally lenders will want all applicants living at the property to be on the mortgage application. However if one of the applicants has a bad credit history some lenders will consider the other applicant who has a clean credit record in their own right subject to deposit and affordability criteria.

One thing that can make this more complex however, is the issue of deposit source. Generally, if a person is gifting deposit then it is based on them having no interest in the property and not requesting the deposit back. This is of course hard to justify if they are then also living in the property, as its difficult to evidence a lack of interest in it if you have given cash for its purchase and live there at the same time!

Thankfully there are some lenders that are happy to consider a gifted deposit to a partner with a clean credit record, providing they are happy to sign the appropriate paperwork to waive rights to the property in event of repossession.

Example:

Applicant one has a clean credit record but applicant two has previously had County Court Judgements. Applicant one is now applying for a mortgage in their name only but applicant two will be living at the address and is gifting the deposit to applicant one.  Whilst some lenders would be happy to consider this situation others will impose some restrictions.

The lenders happy to consider the mortgage for applicant one on their own require the applicant to evidence they can afford the mortgage on their sole income, but will often request that applicant two signs a gifted deposit letter and a waiver of rights to the property.

What happens to your joint mortgage if one of you goes bankrupt

The first thing to note is that generally, secured debt is not included in bankruptcy proceedings unless the mortgage is in default. If you are still making payments to the mortgage, then this won’t usually be repossessed.

If one of you goes bankrupt on a joint mortgage, then the official receiver in charge of setting up the initial stages of the bankruptcy will conduct a review of your assets to determine your beneficial interest in the property. The equity is essentially assessed based on the person’s SHARE of the equity, which does not impact the other party on the mortgage, who’s share is safe from the bankruptcy.

However, the Official Receiver must force the bankrupt person to release the equity to settle some or all the debt. If this cannot be done by raising the funds, then a recommendation would be made to put the property up for sale.

If there is little/no equity then generally, it’s possible for someone to stay in their home. This may be restricted for 3 years, at which point the property is revalued and equity share assessed again to establish whether the property has increased in value.

Bankruptcy annulment

If there is sufficient equity, one option would be to explore raising capital against the property to pay off all the debt and effectively annul/undo/reverse the bankruptcy. There are some lenders that can consider this as a shorter-term loan that gets refinanced onto a normal mortgage after the bankruptcy is removed.

The impact of different bad credit types on joint mortgages

Depending on the type of bad credit, this will have impact on how the lender views your joint mortgage. Lenders will use a sliding scale when considering the case and will offer a range of products including Fixed Rates, Discounted and Variable products etc. with varying interest rates.  Often the rate that you pay for the mortgage can be slightly higher than the ‘High Street’ rates and is sometimes referred to as a ‘Credit Repair’ mortgage.

A lender may have a range of products catering for applicants with different credit issues or complex scenarios, perhaps charging more interest and slightly higher fees for those deemed higher risk. This can vary from lender to lender but typically between £0 - £3000+. In some cases this can be added to the loan.

Also, the amount of deposit /equity a lender will require can differ depending on the level of bad credit, depending on your circumstances this can range from 35% up to 5%.

If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 22nd August 2018
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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.

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.

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