Bad Credit Mortgage
WE'RE BAD CREDIT MORTGAGE SPECIALISTS WITH ACCESS TO THE WHOLE MARKET
BAD CREDIT MORTGAGE
An introduction to Luke…
My name’s Luke Grosse and I’ve been a mortgage broker for almost six years now. I specialise in bad credit mortgages, and this is a real area of expertise for us.
A lot of people just assume that they can’t get a mortgage if they’ve got any credit blips on their record. But I’ve helped many clients get mortgages in this situation, and we get a lot of reviews to that effect. They will often say ‘I never thought I could get a mortgage…’ or ‘I’ve spoken to another broker and I’ve been told I have no options’.
Many times we’ve been able to place them with a lender. If we’re not able to, for whatever reason, we’ll always give people guidance on how they can get themselves into a position to get a mortgage if they don’t have any current options.
How does having bad credit affect my ability to get a mortgage?
It can make it a little bit more difficult, but the good news is there are a number of possible lenders out there.
Bad credit can cover a number of things. It could be simple things, like missed payments on a phone bill, all the way up to an IVA, a bankruptcy or repossession which are much more serious.
The impact that has is that it will knock out a number of lenders. A lot of lenders in the high street just run a credit score and if you fail their credit scoring, they won’t consider it. There’s no appeals process or human intervention. That’s where the specialist lenders who can consider the case come in.
They’ll look at your overall profile, see what has happened and get the story behind it. Certainly, having a bigger deposit will help. But realistically if you can get a deposit of 10% to 15% together, that will give you quite a few options.
What is considered bad credit in the UK?
We’ll start from low severity:
Missed payments – these could be on phone bills or utilities, which is quite common. With the cost of living crisis, that’s been happening more over the last few years or so. Usually if you reach six missed payments on an item of credit, the account will default.
Defaults – That means the creditor closes the account and it marks your credit file with a date and the balance at which the account defaulted, which is typically when the payments missed are 6 or more. Sometimes it will also get sold off to a debt collection agency.
County Court Judgement or CCJ. These are common for unpaid parking fines. You may park somewhere and not realise that there are parking restrictions. You get a parking ticket – but it might go to a previous address and you don’t realise what’s happened. Again, that marks your credit file.
Debt Management Plan. This is where a number of accounts have defaulted, usually resulting from a circumstance such as a job loss. You may have had a number of accounts default but you want to make payments back to the creditors.
They’ll get in touch with a charity like StepChange or PayPlan and they will agree to some payments with you. Perhaps the committed payments were previously £300 a month – if that’s not manageable, you could pay £100 and they distribute it to each of the creditors individually.
An Individual Voluntary Arrangement (IVA) wipes out up to 70% of debt. It’s similar to a debt management plan but it will eliminate a lot of the debt. You will pay money back over a period of up to five years. It’s seen as more serious than a debt management plan. As it waives a lot of the debt, it is seen less favourably than a debt management plan.
A repossession is where a property is repossessed either voluntarily, where somebody hands the keys back, or involuntarily, where a mortgage has gone into arrears. The lender doesn’t think they’re going to get the money back and have exhausted other options for the arrears to be caught up with, so they repossess the property.
A bankruptcy is similar to an IVA in that it wipes out the debt. While it essentially gives you a clean slate, it is a significant hindrance on someone’s credit profile.
What is the minimum credit score required for a mortgage with bad credit?
Well, the great thing is that there is no minimum score with most of the specialist lenders. The more specialist lenders will look at the circumstances that caused the adverse credit. They’ll look at when missed payments have happened, when an account has defaulted, when a CCJ was and how much it was for.
They won’t actually do any credit scoring. In theory you could have a credit score of 1 out of 999 and the lender would still be able to consider you.
Some mainstream lenders do have a tolerance for some adverse credit like defaults, missed payments and sometimes they’ll have a minimum credit score. It might be an Experian score of 600 out of 999, for example.
With other lenders, they might say that they can potentially consider a case but if it fails their credit scoring, there’s unfortunately no appeals process.
Are there many lenders who specialise in mortgages with bad credit?
Yes, there are a number. It depends on your circumstances, the type of bad credit and what you have in the way of a deposit. There are those that accept a couple of missed payments here and there.
Others will work with more serious adverse credit, including bankruptcy and IVAs – even if you’re on day one of being discharged from bankruptcy. Most of these lenders only work directly with brokers. So if you do have bad credit, your best bet is to speak to a broker who specialises in helping people with bad credit.
Can I still get a mortgage if I have had previous bankruptcy or repossession?
Yes, you can. Again, it depends on the circumstances. If you have quite a big deposit, you could have been discharged from bankruptcy just one day ago and lenders will consider that.
Likewise, you might have had a repossession recently, but if you have quite a healthy deposit that can certainly help. We do have instances where a life event causes a client to get into debt. But then around the same time they might receive an inheritance.
Even if you have just come out of a bankruptcy, you could have a large deposit. Also, if it’s quite historical, such as a bankruptcy or repossession that has been discharged for a number of years, that will open up more lenders to you. It could potentially include some mainstream options where you wouldn’t be paying such high rates.
SPEAK TO AN EXPERT
Can you remortgage with bad credit?
Remortgaging is not really any different to a purchase, apart from with a remortgage you’re already in the property. So yes, you can. That can make it easier, especially if you have a good amount of equity in the property.
Again, you might have had a life event like a job loss or bereavement that caused your bad credit. You could remortgage, switch to a better deal and pay off any adverse credit paid off. You could remortgage to clear a debt management plan, for example. If it will help you improve your situation, it’s certainly worth looking at.
Can you consolidate debt twice?
You can consolidate debt as many times as you like – but what we always stress to clients is that you’re taking an unsecured commitment and securing it onto your home.
If you default on a credit card, it’s not secured against anything. There’s no repercussions other than damaging your credit file. But if the same were to happen on a property and you fall into arrears, you run the risk of the property of being repossessed.
You can do it, but again it will come down to your personal circumstances. It could make your situation better. For example, you might have loan and credit card payments totalling £750 a month, plus a mortgage of £1,000 a month giving a total of £1,750.
If you can remortgage and reduce it down to £1,250 a month, you’re saving yourself £500 which will put you in a much better financial situation.
Do I need a larger deposit for a mortgage with bad credit?
Typically, yes. Having a bigger deposit will always give you more options and more choice of lenders. There may potentially be better deals as well, because it can lower the risk to the lender.
If you have a 40% deposit, you’re putting a considerable amount towards the property. A 10% deposit, meanwhile, gives you quite a high Loan to Value (LTV) ratio. But the good news is there are lenders who will go up to 90% LTV even with some adverse credit.
Can I use a guarantor for a mortgage with bad credit?
Most of the specialist lenders can allow multiple applicants onto the mortgage. The downside can be that if you want to add a parent who’s 60 years old, for example, most lenders will say that the term needs to end by the oldest applicant’s 75th birthday.
So in principle you could look to do that, but it really wouldn’t benefit your situation much, because you might be put into a situation where you can only have a 15 year mortgage due to the age of the guarantor, for example if they were 60 years old and the maximum age a lender would go to is 75 years old.
But if they can provide you with a deposit by way of a gift, or to remortgage their own property to help you out, that could potentially be a better option.
How long do I have to wait after improving my credit score before applying for a mortgage with bad credit?
It’s quite circumstantial. It depends on exactly what the bad credit is you’re referring to. If it’s something of a more serious nature like bankruptcy or an IVA, and that’s quite recent, it will heavily restrict your options.
If it’s a couple of missed payments, potentially lenders could look at it right away. For a default it’s usually three to six months before a lender will look at it.
If an account is going into arrears, where you’ve missed a number of payments, it will seem to a lender that you’re in financial distress. That might put quite a few of them off.
The best thing to do then in that case is to just keep an eye on your credit score. You could either have a full report or use just a free one. If you do notice that you are starting to slip into missed payments, try and get them corrected as quickly as you possibly can.
How can I improve my chances of getting approved for a mortgage with bad credit?
I’ve done this for many clients. Get in touch with a good quality broker who can guide you in the right direction. It will come down to the deposit and the overall credit profile, so if you can get any additional savings to put in a larger deposit, that will certainly help. It will just open up more lender options for you.
If you have any missed payments, CCJs or defaults, keep an eye on your credit score. There are free reports like Clearscore, or alternatively if you’ve got a full report like Checkmyfile that will cover every single credit reference agency. It will show you what’s happening with all your accounts.
You might notice that an account is in arrears and you can get it sorted out. If there’s a CCJ you weren’t aware of, you have 30 days to pay it off before it is registered against the credit file.
An unsatisfied default will look better to a lot of lenders if it’s satisfied. You’ll probably see your credit score improve once that happens. Keeping an eye on that is a good idea and could open up more lender options for you.
Also, time will heal all wounds, so the longer that time passes from an account defaulting, or missed payments occurring, the more options you will have. For example, if you’ve had a default 6 months ago, that will have limited options. The very same default but registered 3 years ago will give you more lender options.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
