Here we explain how having bad credit can impact the amount of deposit required when you’re applying for a mortgage, what interest rate you can expect to pay and why speaking to a specialist mortgage broker could boost your chances of getting the approval you seek.
In this article:
- How much deposit do you need to get a bad credit mortgage?
- How different credit issues impact the amount of deposit required
- How a broker can help you get approved
- Options if you have no deposit
- Where can your deposit come from?
- What rates to expect based on your deposit amount
- Get matched with a specialist bad credit mortgage advisor
How much deposit do you need to get a bad credit mortgage?
It depends on the severity of your credit issues, when they occurred and whether they are now resolved. But the answer is likely to be somewhere between 5% – 40% with the average falling at around 15% – 30% – see the table in the next section for detailed information on this.
A few missed payments on your mobile contract, for example, will not result in too great a risk for the lender. However, a previous repossession will give them less confidence in your ability to maintain repayments.
Bad credit mortgages tend to have higher deposit requirements because the lender will feel they’re taking on a bigger risk. The extra deposit funds provide additional security to them.
With the right advice and deposit amount, however, there are circumstances in which you can still get a mortgage after bankruptcy or other very severe credit problems.
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How different credit issues impact the amount of deposit required
Each mortgage lender has their own way of assessing applications and determining how much deposit you need to put down. Some specialist mortgage providers don’t have any set parameters and are willing to negotiate the deposit amount according to your full circumstances.
This means that if you have a history of bad credit but a high income, you may be able to arrange a competitive interest rate, particularly if you have a large deposit.
But there are some general guidelines to be aware of when working out how much deposit you may need, and these are laid out below:
|Bad credit factor||Severity||Typical deposit required|
|No credit history||Not severe||5% - 10%|
|Low credit ratings||Not severe||5% - 10%|
|Late payments||Not severe||5% - 10%|
|Unauthorised overdraft charges||Not severe||5% - 10%|
|Mortgage arrears||Severe||5% - 15%|
|Defaults||Severe||5% - 15%|
|County Court Judgement (CCJ)||Severe||5% - 15%|
|Debt Management Plan (DMP)||Severe||5% - 30%|
|Individual Voluntary Arrangement (IVA)||Severe||5% - 30%|
|Bankruptcy||Very Severe||5% - 40%|
|Multiple credit issues||Very Severe||5% - 40%|
|Repossession||Very Severe||5% - 40%|
As you can see from the table above, the more severe bad credit issues will naturally have a wider deposit range. Regardless of the type of bad credit issue you’ve experienced, the longer it has been since this was recorded, the better chance you have of getting a mortgage with a lower deposit.
For example, if it’s been ten years since you incurred a bankruptcy, this will now no longer show on your record (bankruptcies are removed after six years) and although you may still have to declare it on your application, at this point – if your credit history has been clean since – there’s no reason why you can’t qualify for the lower deposit ranges available from mortgage lenders.
It’s worth noting that, in almost all cases, you will not be able to take out a new mortgage within twelve months (at least) of a very severe credit issue, such as a repossession or bankruptcy, being satisfied.
These figures are just a guide and each issue will be investigated by lenders as part of their assessment of your application. They will want to see evidence that the issue is unlikely to reoccur and your home loan is a good risk.
The higher the risk to the lender, the more deposit you will need. Remember, though, that if house prices rise over time, your equity will increase, and this can increase your deposit amount and make it easier to remortgage even with bad credit.
How a broker can help you get approved with bad credit
Your deposit amount is an important aspect of any mortgage you apply for. But adverse credit will result in instant rejection with some lenders regardless of how much deposit you have.
A bad credit mortgage broker will quickly narrow down which lenders can help according to the nature of your credit issues and deposit amount you have available. This will ensure you only apply to those mortgage lenders most likely to approve your loan.
They’ll also be able to help with:
- Downloading your credit reports: You can download your credit reports by accessing a free trial. Once you’ve done this, your mortgage broker will suggest ways to optimise them and get them into the best possible shape ahead of your application.
- Gathering together all the necessary paperwork: This includes proof of deposit, any documents related to your credit issue, ID, proof of address and three months’ bank statement.
- Securing the right mortgage for you: They can help you get the best rate that you qualify for based on your deposit amount and the type of bad credit you have.
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Options if you have no deposit
If you have bad credit and no deposit, there are still options open to you.
Guarantor mortgages: A third party (usually a close family member) acts as guarantor and agrees to step in to make repayments if you can’t afford them.
Joint buyer, sole proprietor mortgages: Similar to a guarantor mortgage, these allow you to buy in conjunction with a family member but maintain sole ownership of the property.
Offset mortgages: A family member puts up their savings as security in lieu of a deposit.
Lifetime ISA: A government-backed savings scheme designed to boost your deposit amount. You can pay in up to £4000 per year which the Treasury will top up by 25%.
Shared ownership: While this doesn’t directly impact the deposit percentage required, it allows you to part buy and part rent so may help you get on the housing ladder with bad credit and a low deposit.
Right to Buy: If you’re an existing council tenant, you may be eligible to buy your home at a discounted price which could see a low deposit represent a more favourable loan to value (LTV) and help you qualify for a mortgage.
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Where can your deposit come from?
Some mortgage lenders prefer your deposit to come from your own savings and for there to be a paper trail showing them building up in your bank account. There are other approved sources too, and having bad credit doesn’t impact on this.
These sources include:
- Proceeds from the sale of another property or asset
- Gifted deposits
- Equity released from another property
You may need to find a specialist lender if your deposit comes from a non-standard source, such as:
- Overseas savings
- Gambling winnings
- Crypto currency profits
- Personal loans
Could you borrow your deposit?
Borrowing a deposit by for example, taking out a personal loan, would see your deposit funds fall into the ‘non-standard’ category. But under these circumstances, you will likely find it more difficult to get approved for a mortgage as the vast majority of lenders won’t accept borrowed deposits.
With your bad credit factored in, professional advice is vital if you want to stand any chance of finding a willing mortgage lender.
What rates to expect based on your deposit amount
As a general rule, a higher deposit reduces the risk for the lender and allows you to access lower rates.
With minor credit issues such as unauthorised use of an overdraft or one or two late payments on your credit cards, for example, you may still be eligible for the best rates with some high street banks. Historic problems with credit such as a satisfied CCJ or an IVA that was registered more than six years ago could see being offered a higher interest rate with some lenders, despite having a large deposit.
The table below offers an example of the interest rates you may qualify for from mortgage lenders who specialise in helping applicants with a history of bad credit.
Looking for more rates and deals?
We can match you with a mortgage broker who can provide you with up-to-date bespoke rates and deals from across the entire market.
Last updated December 2023
The rates quoted above were correct at the time of writing and are subject to change at any time at the lender’s discretion. Speaking to a mortgage broker is the best way to keep track of the rates available at any given time.
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Get matched with a specialist bad credit mortgage broker
When you’re looking to borrow with poor credit, finding the right deal is tricky but essential. You’re likely to be paying higher rates anyway, so anything more than absolutely necessary could prove expensive.
Our broker matching service will pair you up with a specialist bad credit mortgage broker with experience of helping others in your situation.
They will compare your circumstances with the risk profiles of high street lenders and specialist providers to ensure you get the best deal according to your situation and the amount of deposit you have.
To get matched with your ideal broker, call today on 0808 189 2301 or enquire online.
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