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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: 16th November 2020*

For those with bad credit, the thought of ever owning a home can be really daunting and frankly seem impossible.

Thankfully, there are numerous specialist mortgage providers who are happy to lend to those who have a bad credit history, whether in the past, or more recently.

Even if your credit issues were considered to be severe, there are still lenders who will be willing to approve your application, with the right level of deposit.

When you have bad credit, how much deposit you’ll need will depend on some key factors, which we’ll explain in this article.

We’ve helped many homeowners onto the property ladder, regardless of their credit history or size of deposit.

To make life just a little bit easier, we’ve collated everything you need to know about the deposit requirements for a poor credit mortgage into this guide.

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How much deposit do I need for a mortgage with bad credit?

The amount of deposit you need will vary from case to case. Each home loan provider will have their own criteria to calculate and assess your application to work out how high-risk you are and how much they’re willing to lend you.

They will assess your mortgage application using a variety of interlinking factors, including the following:

  • What type of adverse credit you have and how much you owe(d)
  • When your bad credit was first registered
  • If your debt is settled or not
  • What your credit score is (but keep in mind that not all lenders use credit scoring)
  • How much the property you’re looking to buy is worth
  • Whether the property type is a house, flat, bungalow, new build or other
  • What your income is
  • Your employment type (e.g. full-time employed, self-employed, contractor, retired etc)
  • Your age at time of application

In order to increase your chances of getting a more competitive mortgage, you will also have to declare to the lender:

  • Any court orders for non-payment of debt
  • Mortgage, rent or loan arrears
  • Whether you have been refused a mortgage or credit
  • Repossession where you were party to the mortgage

If any of these factors apply to you, it doesn’t mean that a mortgage will be out of the question, but you will likely need to help of a mortgage expert.

How deposit size affects your application

A general rule of thumb with all mortgages – especially for applicants with bad credit – is that the more deposit you can put down, the better interest rates you’re likely to get, and the more you could borrow. This is because a higher deposit will demonstrate to the lender that you’re capable of being responsible with money despite your bad credit, and it will bring down the loan-to-value (LTV) ratio, the percentage of the property’s value that the mortgage needs to cover.

If your bad credit is severe, the more risk it poses to the lender, so you may be required to front up a larger sum in order to get your mortgage. For example, an applicant with a bankruptcy poses a larger risk to a lender compared to someone with two months’ worth of missed mobile phone payments, so they will be expected to put up a much larger deposit.

However, depending on your circumstances, it’s not impossible to qualify for a mortgage with a deposit worth just 5% of your property’s value. Get in touch and we’ll connect you with one of the experts we work with. They’ll be able to see how much you can afford to borrow and the interest rates involved based on the amount of deposit you have.

Will the type of bad credit I have affect my required deposit amount?

Yes, and the more severe your bad credit, the more deposit you’ll need. A deposit acts as a security to offset any potential risk your application poses, as the less you need to borrow from a lender, the less they’ll need to claim back should you fail to meet your repayments.

The chart below gives you a rough idea of the deposit requirements based on the type of adverse credit you may have.

Adverse credit type Severity Deposit needed if registered recently
No credit history Not considered as severe 5-10%
Low credit score Not considered as severe 5-10%
Late payment Not considered as severe 5-10%
Unauthorised overdraft charges Not considered as severe 5-10%
Missed mortgage payments Severe 10-15%
Default payment Severe 10-15%
CCJ Severe 10-15%
Debt management schemes Severe 15-30%
IVAs Severe 25-30%
Bankruptcy Very Severe 30-40%
Repossession Very Severe 30-40%
Multiple credit problems Very Severe 30-40%

If any of the above credit issues apply to you, see below for specific information regarding how it could affect your application and deposit size needed.

Arrears

Lenders will look to see if your arrears are recurring or likely to recur, as this demonstrates to the lender that you are not responsible with money.

  • Secured/mortgage
    It may be possible to get a 95% LTV mortgage (i.e. with 5% deposit) with this type of adverse, though this is subject to specific products and your overall circumstances.
    Some lenders require that you have not missed any payments in the last 12 months, while others may be more flexible with a maximum number of months (two, for example) allowed in a 12-month period.
    The criteria for each lender will be different, though many of them will look at your previous conduct and require a written explanation of circumstances before agreeing to lend. If you have a clean track record of paying your loan but fell into arrears after losing your job, lenders may be more lenient.
  • Unsecured
    With no asset to fall back on, lenders will be stricter with this type of adverse. Some may outright decline your application if you have two months or more late with payments on individual debts in the last 6 months, though others could consider applicants with minor (less than three months) or historic (two or more years) unsecured arrears.
    Lenders will also look at your credit score and assess your application with a mortgage underwriter to see whether they can lend to you and, if so, how much. However, in the right circumstances, you could potentially borrow up to 95% of the property’s value.

CCJs

The date your county court judgement (CCJ) was registered could impact how much deposit you’ll need to offset any risk it poses to lenders.

  • Satisfied
    Many lenders could potentially accept applicants with a previous and satisfied CCJ, though they may set a maximum figure which you cannot exceed over a certain number of years. For example, a maximum of £500 and satisfied for over three years.
    As far as deposits go, you may only need 5% to get a mortgage, though you may be asked to put down 15-20% depending on how much you owed and how long ago you satisfied the CCJ.
    Also bear in mind that some lenders will set a maximum loan size depending on how much the property is worth. For example, some lenders may only lend 95% for properties worth up to £250,000, while others could go higher.
    For more information, make an enquiry to speak with one of the experts are specialists in CCJ mortgages.
  • Unsatisfied 
    Unfortunately, many lenders may decline applicants who have an unsatisfied CCJ if it was registered within a specific time frame, for example, the last six months. First-time buyers with an unsatisfied CCJ may also be turned away unless the adverse is historic (for example, three years old).
    You may need to put up a deposit of 15-20% in order to qualify for a mortgage with this type of adverse credit.

Debt management plan

Whether you’ve recently enrolled on a debt management plan (DMP) or you’ve fully paid yours off, you may need to put down a deposit between 15% and 30%, depending on your circumstances and the type of property you buy.

  • Satisfied: 
    You’ll be considered more of a ‘prime’ candidate if your debt management plan has been satisfied for three or more years, though you’ll still have options if you’ve only recently been satisfied with your DMP.
    You may need to put down a deposit between 15% to 30% depending on your circumstances, though in some cases you may be able to borrow a higher amount.
  • Current/unsatisfied:
    Some lenders won’t automatically decline your application if you have a current and/or unsatisfied DMP. Instead, their decision to lend will be based on the overall risk your application presents and your credit report.
    You may need a deposit of up to 30% to offset any risk you present to the lender.
    If you have other types of bad credit, then your chances of getting a mortgage may lessen.
    However, the expert bad credit mortgage brokers we work with can help you find specialist deals from lenders who will potentially accept a mortgage with a debt management plan.

Defaults

Like CCJs, lenders will take note of when your default was registered if your default is satisfied or unsatisfied, and how much the default was for. A default will stay on your credit file for six years, and the longer you’ve had your default, the better deal you may be able to get.

Some lenders may not accept applications where the default’s total value exceeded a certain amount within those six years, for example, £500 or even £2,000. You may also need to supply a written explanation regarding the circumstances of your default.

  • Satisfied
    If you’re buying a residential home, you may be able to borrow up to 95% of the property’s value, though you may be restricted by the lender’s maximum loan amount (for example, £350,000). You’ll likely need a larger deposit for a new build or buy-to-let mortgage.
  • Unsatisfied 
    Many lenders will accept applicants with small, unsatisfied defaults on a case-by-case basis. You may be required to put down a deposit between 10% to 15% or even higher depending on the severity of your default and your application as a whole.
    For more information on mortgages with defaults, you can view our in-depth page, or you can make an enquiry to speak with an expert on how to get a mortgage with a default.

Discharged bankruptcy

Most lenders will not accept applicants who have been discharged from a bankruptcy between one and two years, preferring three or four years minimum. If you are still in a current bankruptcy, your application won’t be considered.

If you have a discharged bankruptcy, you’ll likely need a deposit size of 30% to 40% of your property’s value. For example, if you were buying a house for £145,000, you would need to save up £43,500 for a 30% deposit – and that’s not including the extra costs involved.

For the best advice on how to get the best mortgage deal with a discharged bankruptcy, speak with one of the experts we work with. They have experience in helping similar people get a mortgage.

IVA

When it comes to individual voluntary arrangements (IVAs), lenders will pay attention to the year it was registered and the year it was satisfied (if applicable).

For IVAs registered over six years ago, you may be able to access a lender’s ‘standard’ products. Many lenders prefer applicants to be discharged a minimum of three years ago, though you may need to provide evidence of this and a written explanation regarding the circumstances of your IVA.

You’ll likely need to front up a deposit worth over 25% of your property’s value, though it could be more depending on your circumstances and the date your IVA was registered.

Late payments

Late payments are not considered a ‘severe’ type of adverse credit, and you can usually get a mortgage with a deposit of 5% to 10%, though this will depend on whether you have any other credit issues and the type of property you wish to buy.

Lenders will also be interested to see how you conduct your other accounts. So long as your late payments aren’t a recurring issue, then you shouldn’t have a problem.

Mortgage arrears

Lenders will need to know how many months you missed your mortgage payments within a 24-month period. If you only missed one month and you can supply a written explanation of your circumstances, then your mortgage application will likely be accepted, subject to other criteria.

Many lenders will accept up to two missed payments, and the deposit size you need will vary between 10% to 25%, depending on your circumstances and the lender’s criteria.

However, if you have a string of missed payments within two years, your application will be declined.

Multiple credit problems

If you have multiple credit issues, then you’ll likely need a deposit of 30% or even 40% of the property’s value.

For the best advice, speak with an expert broker, like those we work with. They will be able to review your circumstances and be realistic about what type of mortgage you could get, then find tailor-made deals to match.

Repossession

If you have a previous repossession, your ability to get a mortgage will rest heavily on how many years have passed since the repossession.

If your property was repossessed a year ago, you won’t be eligible to take out a mortgage. The more years you can but between the repossession and your new mortgage application, the better your chances will be.

Some lenders will consider applicants with a previous repossession of three years ago, while others require six or seven. In terms of a deposit, you’ll need to put up between 30% to 40% of the property’s value.

Unauthorised overdraft charges

Many lenders will treat unauthorised overdraft charges the same as a missed payment on a credit or store card and are willing to consider applicants. Their decision to lend will come down to your credit report, the overall quality of your application and circumstances, and the value of the property you wish to buy.

Mortgage providers may lend you up to 95% of the property’s value, though the more you can put down, the better.

What other factors will affect my application?

Aside from your bad credit, there are many other factors that can impact the mortgage amount a lender would be willing to give you. See below for more information.

Affordability checks

Mortgage affordability checks are put in place by lenders to see if you can afford to meet the repayments on your property. Lenders will calculate your debt-to-income ratio (DTI), which is simply the amount of debts and monthly obligations you have versus your gross monthly income (the amount you make before tax and expenses).

Lenders prefer to see a debt-to-income ratio of less than 36%, and to calculate this they will look at:

  • Student loan repayments
  • Credit card debts
  • Loans
  • Rent
  • Car payments
  • Child support
  • Any other monthly obligations

To calculate your DTI, simply divide your monthly bills by your gross monthly income. For example, if your monthly debt comes to £600 and you take £1,700 home each month, you would divide 600 by 1,700 to get 0.35, or 35%.

With this in mind, it’s important to have all the necessary evidence before you apply for a mortgage.

Employment type

Lenders prefer applicants who are in PAYE, full-time employment because of the extra job security, and especially if you have bad credit. People who are self-employed, contractors, or retired could also get a mortgage, though they would need to provide evidence of their income.

For example, lenders prefer that self-employed individuals have more than three years of accounts and a larger deposit, however, it’s possible to get a mortgage with less than two years of accounts and a smaller deposit, depending on the type of adverse credit you have and your overall circumstances.

Age

Most lenders will set a maximum age at point of application and a maximum age at the end of the mortgage term, while others will set no limit.

Bear in mind that the older you are at point of application, the shorter your mortgage term is likely to be, which means that your monthly repayments could be higher. If you have bad credit, you could potentially lower your interest rate by putting down a larger deposit.

You need to be over 18 to get a residential mortgage in the UK, while you must be over 21 to get a buy-to-let property.

Property value

Your property’s value will depend on its size, location, type and condition. Because deposits are a percentage of the property’s value, the amount you will need to save up could vary greatly.

When you apply for a mortgage, you will need to get a survey of the property’s condition and value to ensure that you’re paying the right price for it. A surveyor will highlight any potential issues in the property, as well as look at the prices of similar properties in the area to come to a price for the one you’re interested in buying.

Property type

Your loan-to-value ratio could be different depending on the type of property you purchase. For example, a lender may set a maximum LTV of 95% for a house, whereas a flat or a new-build would be 85%. For a non-standard construction, this figure could be even higher.

Can I get a mortgage with a small deposit?

Yes, you can, even with bad credit. However, a mortgage lender will base their decision on your overall circumstances, the nature of your bad credit, and how much was involved. If your deposit size is smaller, you could take out a higher loan-to-value (LTV), though your interest rates may be higher.

However, there are some steps you can take to improve your profile prior before you start applying anywhere. These include:

  • Strong income
  • Stable employment
  • Improve your credit rating
  • Minimise debts
  • Download your credit reports
  • Fix any errors on your credit reports

While most lenders prefer bad credit applicants to have a larger deposit, you could still get a competitive home loan with the help of an expert broker, like the ones we work with. Depending on the severity of your bad credit, you may be able to secure a mortgage with a deposit as low as 5%. Make an enquiry and we’ll connect you with an expert shortly.

Can I get a better deal with a big deposit?

Potentially, yes. If you have a deposit between 20% and 50%, your chances of getting a mortgage with a lower interest rate could increase. While your interest rates could still be higher compared to someone without bad credit, it could significantly reduce your monthly repayments.

Your deposit could come from your personal savings, a gifted deposit, and ISA, or by releasing any equity you hold in assets.

For the best home loans, speak with one of the experts we work with. They will be able to search the market to find you the best mortgage for your circumstances.

Is a mortgage with no deposit possible?

Unfortunately, 100% loan-to-value mortgages do not currently exist in the UK. While you can’t borrow the total value of your property, there are ways you can get a home without saving up a very large amount.

However, if you don’t have a deposit, you could consider a guarantor mortgage. This is where someone else is named on the title deeds but won’t be a co-owner of your property. They are then liable to meet the repayments should you not do so. This provides an extra layer of security to the lender to offset any risk your bad credit and no deposit presents.

Are there any schemes I can benefit from?

There are a number of schemes that are designed to boost your deposit and increase your chances of getting more favourable rates. See below for more information.

Help to Buy

For first-time buyers, the government backedHelp to Buy: Equity Loan scheme allows you to borrow up to 20% of a new-build property’s value to put down as a deposit. You then need a 5% cash deposit, meaning that you only need to borrow 75% of the property’s value. This scheme is set to stop in March 2023, unless the government decides to extend it.

The Help to Buy: ISA scheme closed to new applicants in 2019.

Lifetime ISA

A Lifetime ISA (LISA) allows you to save up to £4,000 per year to put towards your first home, and the government will top up your savings by 25% each month, allowing your funds to compound and grow in your ISA. If you saved £4,000 for five years, you would get a ‘free’ £3,000 from the government – and that’s not including the interest you’d incur during this period.

Shared ownership

The shared ownership scheme is designed to help first-time buyers and those who do not currently own their own home get on the property ladder by owning a share of their property outright and paying rent to the housing association who owns the remaining share.

You can enter into a shared ownership scheme with a 5% deposit, and your share can be as little as 25%. Over time, it may be possible to buy an increased share from the housing association and eventually own the property outright.

Right to Buy

If you currently live in a council or housing association property, you may be able to purchase it with a large discount thanks to the Right to Buy scheme. This discount can be factored in as a deposit by lenders, so your loan-to-value ratio could be lower.

Family springboard

If your family is in a position to help you get on the property ladder, then a springboard mortgage could be for you. You use your family’s savings to buy your own home outright, then they get their money paid back with interest.

These funds are put into a savings account where the lender will take charge over the funds. If the borrower defaults on their payments, then this sum acts as a security measurement.

My partner has bad credit, should we apply together?

It’s entirely up to you and your partner to decide whether or not to take out a mortgage together or not. If one of you has bad credit and the other doesn’t, then you could end up paying a higher rate of interest and putting down more deposit for your mortgage if you apply together.

It’s important to note that lenders won’t combine your credit scores and average them out to improve your application, nor will they give more weight to the applicant with the lowest credit score. Instead, they will pay closer attention to the person with bad credit.

However, it’s not all about bad credit – lenders will also look at your total combined income to decide how much they will lend you, so if your partner’s income can unlock a larger amount and you can afford to meet the repayments, then it could outweigh the potential downsides.

If you need more guidance on a joint mortgage, speak with an expert broker. They can review both you and your partner to see what sort of mortgage you could get applying together versus applying as a single applicant.

Will location impact how much deposit I need?

Yes, it can do. Different initiatives are available in England, Scotland, Wales and Northern Ireland to help people get on the ladder by boosting their deposit amount, though some of these schemes are only applicable for new-build properties, which could be a problem if you live in a rural area with less properties and a smaller population.

This could result in fewer options for a buyer when considering interest rates and could also mean they have to take a mortgage out with a lender who requires a deposit. However, by working with a bad credit mortgage broker, they will be able to review your circumstances and be transparent about your options.

What deposit do I need to buy a second home?

Most lenders will ask for a deposit worth 25% of your second home’s value, though they could ask for more depending on the type and status of your bad credit.

The same circumstances will apply if you’re a bad credit customer who’s hoping to take out a 2nd charge loan on a property you already have a mortgage on. These lenders can be difficult to find, which is why talking with a specialist broker can be a huge advantage, as they have access to the entire financial market.

How much do I need for a buy-to-let?

If you’re after a buy-to-let mortgage (BTL) but have bad credit, lenders will assume that there’s a greater risk of defaulting on your mortgage, and will therefore likely ask for a deposit of 20%, 30% or even more, depending on your circumstances. Your interest rates may also be higher, so the more you can put down, the better off you may be.

However, there are other specialist lenders who, depending on your circumstances, might even ask for lower deposits between 15% and 20%. Sometimes, the type of credit and the date of the missed payment or default can influence the chances of approval.

Another factor to consider is that lenders will also evaluate your income, and many will require you to be earning a minimum of £25,000 to meet their affordability and eligibility criteria.

If you want a buy-to-let mortgage and have a bad credit score, a specialist lender may be able to offer you a more competitive rate, since high street banks and lenders can have stricter and less flexible rules. To find these lenders, speak with one of the expert brokers we work with.

Speak to an expert

If you have questions about what sort of deposit you might need for a mortgage or want to know what you might expect with your own bad credit situation, call 0808 189 2301 or make an enquiry.

We’ll match you with an expert broker with knowledge and experience of successfully arranging mortgages for customers with bad credit history. The service is entirely free and there’s absolutely no obligation or marks on your credit rating.

Updated: 16th November 2020
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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.