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Using the 2021 Mortgage Guarantee Scheme With Bad Credit

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 14, 2022

The mortgage guarantee scheme can help you get onto the property ladder with less than 10% deposit, but does having bad credit stop you from qualifying for the scheme? The answer depends on many factors, and in this guide, we’ll explain exactly what they are.

Our guide to bad credit and the mortgage guarantee scheme covers the following topics…

Can you use the mortgage guarantee scheme with bad credit?

Yes, but keep in mind that mortgage approval won’t be easy and you’d be at risk of ending up with a high interest rate. Bad credit mortgages usually come with high deposit requirements to offset the risk the lender is taking on, so you’ll likely find that your options are limited through the guarantee scheme, but not necessarily non-existent.

Whether your mortgage is approved might depend on the following…

  • The age of your credit issues: The longer they’ve been on your file, the better
  • The severity of the issue: For example, a repossession will probably be a deal-breaker but a missed mobile phone payment might be overlooked
  • The reason for your bad credit: Some lenders might overlook your bad credit if it was the result of an unexpected life event, rather than financial mismanagement

Types of bad credit that might affect your application

Most, if not all, types of bad credit are likely to impact your application if you’re applying through the mortgage guarantee scheme. The lenders who are on board with this initiative are high street banks, and they’re typically the toughest when it comes to bad credit.

However, your chances of getting a mortgage through the scheme will likely be higher if the type of credit issues you have are not classed as severe.

The majority of UK mortgage lenders consider the following types of bad credit to be the least severe

  • No credit history
  • A low credit score
  • A history of late payments

It will be more difficult  with the bad credit issues listed below, as most lenders will class them as severe

  • Missed mortgage payments
  • Defaults
  • County country judgements (CCJs)
  • Debt management plans
  • Individual voluntary arrangement (IVA)

And the mortgage guarantee scheme is unlikely to be your best option if you have one of the credit issues below.

These are usually classed by lenders as very severe

  • Bankruptcy
  • Repossession
  • Multiple credit problems

Although the age and the reason for your credit problems might be taken on board by the lender, your chances of getting a mortgage through the guarantee scheme with bad credit will be slimmer depending on which category of severity your problem falls into.

But the good news is that the mortgage guarantee scheme isn’t your only option. There are specialist lenders who have reintroduced 95% LTV mortgages since the early days of the COVID-19 pandemic, and one of them could be a more viable alternative, since specialist mortgage lenders are often more forgiving of bad credit.

It may also be worth exploring whether a Help to Buy equity loan might open up extra mortgage options to you by offsetting the risk posed by your bad credit.

You should speak to a mortgage broker who specialises in borrowers with bad credit to find out whether a mortgage guarantee scheme deal, Help to Buy or a specialist lender is the best option for someone with your needs, circumstances and credit profile.

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How to get a bad credit mortgage through the guarantee scheme

Here are three easy-to-follow steps to kickstart your application…

  • Download your credit reports: If you have bad credit, it’s important to review and optimise your credit file to get it into the best shape possible before you apply. Download your files here and be sure to pore over them with a fine tooth comb. Challenge any inaccuracies and make sure they’re fully up to date.
  • Get your documents together: It’s a good idea to prepare for your mortgage in advance as this can shave time off the application process. No extra documents are needed for a mortgage guarantee scheme application, nor will there be any additional paperwork to fill out for it. Find out what documents your mortgage lender will ask for in our complete guide to mortgage applications.
  • Speak to a mortgage broker: This is highly recommended if you have bad credit and a low deposit. There are mortgage brokers who specialise in both of these areas and they can help you find the best deal for you, negotiate with the lender on your behalf and guide you through every step of the application process.

Your broker will compare the rates and deals available through the guarantee scheme with all other alternatives and offer you bespoke advice on the next steps.

Remortgaging through the guarantee scheme with bad credit

It could be possible to remortgage through the mortgage guarantee scheme with bad credit, but only if you satisfy the mortgage lender’s general eligibility checks, which will include a thorough assessment of your credit report.

Unless your bad credit has been on your file for a while (often three years or more) or the issue is minor, you might need to broaden your search to products beyond the mortgage guarantee scheme, as this is where the best rates that you qualify for could lie.

Broadly speaking, there’s no real difference between applying for a mortgage via the scheme and remortgaging through it, though if you’re already with one of the participating lenders, it would be treated as a product transfer.

Either way, it can be difficult to get a bad credit remortgage of any kind with a low deposit, so your best bet is to have a specialist remortgage broker compare the entire market for you. This will tell you whether remortgaging through the guarantee scheme or an alternative lender is your best option, and they can guide you through the process, too.

Lenders offering bad credit mortgages through the guarantee scheme

Lloyds, Natwest, Santander, Barclays and HSBC are offering mortgages through the guarantee scheme, with Virgin Money now having joined them too. Although these mortgage providers are high street lenders, they do offer bad credit mortgages under the right circumstances. That said, this isn’t usually on their 95% LTV product range, though exceptions are occasionally made on a case-by-case basis.

For example…

  • Natwest can be flexible with defaults, CCJs and satisfied debt management plans
  • Santander often overlook arrears and debt management plans
  • Barclays can overlook arrears and satisfied CCJs
  • HSBC can potentially ignore CCJs and defaults that over over 36 months old

As you can see from the above examples, there are scenarios where mortgage guarantee scheme lenders will offer bad credit mortgages but, generally speaking, it’s difficult to get a mortgage through the initiative unless you have clean credit.

But there’s good news, too: the mortgage guarantee scheme isn’t the only way to get a mortgage with 5% deposit. There are now specialist lenders offering 95% LTV deals – some of which are exclusively available through mortgage brokers – and other alternatives like the Help to Buy scheme to consider.

One of these alternatives could be a better option for a bad credit mortgage, so it’s a good idea to have a specialist broker compare every possibility to help you make an informed decision about which course of action to choose.

Don’t limit yourself to the guarantee scheme

While it might be possible to get a mortgage through the guarantee scheme with certain types of bad credit, it’s vitally important that you don’t limit yourself to deals that are available through it. The mortgage providers who are taking part in the government initiative are high street banks, and these are typically the strictest when it comes to bad credit.

This means that the chances of rejection or having to pay a hiked-up interest rate are high. But the good news is that there are a range of other lenders offering 95% loan-to-value (LTV) mortgages, and one of them might be a better fit for a customer with poor credit.

Furthermore, there could be other options to consider, such as a Help to Buy equity loan. Through this government scheme, you would end up with an additional 20% equity in your property, and this might help lower the risk posed by your bad credit.

There are brokers in our network who specialise in bad credit and low deposit mortgages, and it’s worth your while speaking to them if you’re applying under these circumstances. They can round up all of the deals that you qualify for based on your creditworthiness, compare the guarantee scheme with other options and help you choose the right product.

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Speak to a mortgage broker

If you have bad credit of any kind, getting a mortgage through the mortgage guarantee scheme can be difficult, and even if you’re approved there’s no guarantee the rates will be favourable. But the good news is that the mortgages available through this government-backed initiative aren’t necessarily your only option.

The right mortgage broker will know exactly which alternatives borrowers with bad credit should consider and will compare the products available across the mortgage guarantee scheme with other 95% LTV deals and alternative schemes such as Help to Buy.

We’ve made it our mission to help customers find the right mortgage broker, and in this case, that will be someone who specialises in low deposit mortgages and bad credit. There are advisors with this knowledge and expertise in our network and our free broker-matching service will pair you up with one without you having to lift a finger.

Call 0808 189 2301 or make an enquiry and we’ll set up a free, no-obligation chat between you and a broker who specialises in the mortgage guarantee scheme and bad credit today.


Do you need a good credit score for the mortgage guarantee scheme?

Clean credit is recommended if you want access to all of the products available under the guarantee scheme, but a good credit score is not strictly essential as some lenders don’t use credit scoring at all. All of them will check your credit file for the presence of adverse, but they won’t necessarily assign you a numerical score or a credit rating.

While there might be a guarantee scheme lender who assigns you a low credit score due to a lack of borrowing history, for example, another mortgage provider who doesn’t use credit scoring might be happy to approve you based on the absence of bad credit.

Will I need to pay any extra fees if I have bad credit?

No, but most experts recommend putting down as much deposit as you can afford if you have bad credit, as this can help offset the risk. Mortgage guarantee schemes aren’t strictly for borrowers with 5% deposit. It’s possible to put down up to 9%, and doing so might increase your chances of mortgage approval and getting a lower interest rate.

Furthermore, using a mortgage broker is recommended if you have bad credit and this might come with an extra fee. You can read more about mortgage broker fees in our guide to bad credit mortgage advisors.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the 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.

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