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COMPARE MORTGAGES FOR PEOPLE WITH BAD CREDIT HISTORIES WITH KOODOO[1]
Getting a mortgage with bad credit is possible, but it’s much harder than if you have a perfect credit history. When you apply for a mortgage, lenders assess your credit score and use your credit history to determine your ability to make repayments.
Each lender will have its own criteria for what it considers to be bad or adverse credit. Credit problems could include anything from a missed bill payment to having your home repossessed.
Relatively minor credit problems like a single late credit card payment won’t stop you from getting a mortgage. But if you've been declared bankrupt or had a county court judgement (CCJ) in the last six years, you may struggle to find a mortgage lender who'll accept you.
There are lenders who might consider people who have been rejected for mortgages elsewhere. But you won’t have as much choice as those with no previous credit problems.
That means you’ll probably have to pay a higher interest rate and fees.
When you apply for a mortgage the lender will ask whether you’ve had past credit problems, including any defaulted credit card and loan payments, or CCJs.
If you have missed repayments on bills, credit cards or loans in in the past, you’re likely to be asked for extra evidence that you can afford to pay a mortgage now.
The lender might want to see more payslips and bank statements than it would if you had no past credit problems.
You’ll also need to provide everything you would for a standard mortgage application, which includes:
There are some steps you can take in the months before you apply for a new mortgage to increase your chances of being accepted if you have bad credit.
Postpone buying a home until you're in a stronger financial position.
In the meantime, build your credit rating back up by making repayments for bills and credit cards on time. And save more for your deposit.
This is not a short-term solution; it could take months or even years. However, it’ll give you access to more competitive mortgage rates in the future, which will save you money in the long run.
You can use free services like Experian or Credit Karma to look at your credit report and see when you’ve missed payments or had CCJs.
These services will also show you a credit score, although this is just to give you a general idea of your creditworthiness. Each lender will score you differently against their own criteria.
Once you’ve assessed your credit problems, you can work on fixing them.
Anything from a single missed payment to bankruptcy can affect your ability to get a mortgage. You should start pushing up your credit score well in advance of a mortgage application by making all repayments for bills and credit on time.
One way to do this is with a credit builder credit card, but only once you feel able to handle the responsibility and repayments.
Low-deposit mortgages often have tighter acceptance criteria. The higher the deposit that you have, the better the chances you have of finding a mortgage you're eligible for.
Lenders might ask that you have a larger deposit if you have bad credit – for example around 20-30%, instead of 5-10%.
That will mean that the mortgage you need is lower, at around 70-80% loan to value (LTV), which may be easier to access.
If saving that larger deposit is a struggle, most lenders will accept a deposit if it's 'gifted' from a family member. This can't be a loan and you must be under no obligation to repay the money.
In the future you might find you’re in a position to repay the money. There's nothing stopping you from 'gifting' the money back to them then.
If you're unable to get a mortgage because of bad credit, it’s worth considering borrowing alongside a loved one.
In recent years joint borrower sole proprietor (JBSP) mortgages have become more common, effectively replacing guarantor mortgages.
As the name suggests, with a JBSP mortgage you take out a joint mortgage with someone else, perhaps a parent, with both of you responsible for making sure repayments are made. However, only one of you is named as the owner of the property.
JBSP mortgages have taken off since borrowers may be able to access bigger loans, or simply a mortgage in the first place, compared with borrowing alone.
There are important downsides to consider though; if you don’t make your repayments, then the lender can pursue your loved one for the money owed. They could even have their house repossessed if they can’t.
You and your joint borrower will be tied to each other financially. Any missed repayments in the future will affect both your credit ratings.
Even if you opt to borrow together, you’ll still need to be credit checked to get a mortgage. You could still be turned down due to a poor credit rating.
A mortgage advisor will help you find the right product for your needs and help you with your application. They could help you to find a deal you’re likely to be accepted for with past credit issues.
Mortgage brokers have access to lenders and products that you cannot get as a direct borrower, with some specialist mortgage lenders specifically targeting borrowers with bad credit.
A mortgage lender will credit score you as part of the process of deciding whether to offer you a mortgage and defaults within the last six years will show up on your credit report.
Because of this, it’s best to wait for credit problems to drop from your credit file, all while making payment for other bills and finance on time to strengthen your credit score.
But that could take months or years. If you’d rather apply immediately, there are a few advantages and disadvantages.
There’s no cut-off credit score you need to achieve to get a mortgage. That’s because there’s no such thing as a single credit score that all lenders use. When you apply for a mortgage, the lender will look at your credit record and apply its own credit scoring.
But there are some things you can do to improve your credit score with all lenders:
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Page last reviewed: 14 September 2023
Page reviewed by John Fitzsimons
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
PLEASE NOTE: THE FCA DOES NOT REGULATE MOST BUY TO LET MORTGAGES
[1]For online mortgage comparison and advice Gocompare.com introduces customers to Koodoo which is the trading name of Mortgage Power Limited who are authorised and regulated by the Financial Conduct Authority (FRN 845978). Gocompare.com’s relationship with Koodoo is limited to that of a business partnership, no common ownership or control exists between us. Please note, we cannot be held responsible for the content of external websites and by using the links stated to access these separate websites you will be subject to the terms of use applying to those sites.