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There are many people in the UK who have a bad credit history. If you are one of them, you could be wondering, can you get a mortgage with a bad credit rating? So where do you start and what is involved? In this blog, we'll look at some of the factors taken into account. We have also put together a handy bad credit mortgage calculator so you can check if affordability is an issue and a mortgage check tool to see if you qualify for a mortgage.
How a bad credit rating affects your mortgage options
There are all sorts of different types of bad credit history. It could be that you had some difficulty a while ago and incurred some late payments on a credit card or missed some payments altogether. You might have been issued a County Court Judgement (CCJ), classed as defaulted or even registered as bankrupt. How bad credit ratings affect your mortgage options is really down to how severe the bad credit is. If you had a minor missed payment some time ago and everything else has been fine since you should be able to get a mainstream mortgage with lower rates. Anything more severe and it's likely you will need to look at a bad credit mortgage from a specialist lender. A bad credit mortgage will work in exactly the same way as a mainstream mortgage except the lender will take a more sympathetic view of your credit history in return for higher interest rates.
How to improve your credit rating before applying for a mortgage
There are some basic steps you can take before you apply for a mortgage to improve your chances of success. Here are some areas to consider:
Check your credit report for errors and dispute any incorrect information
Firstly get hold of your credit report. You need to be able to see the full detail, not just the 'score'. There are some free options available online but if you need help with this please contact us. Once you have the report, you should be able to see everything the lenders can see before you apply, so make sure the report is accurate. Common errors can be misspelt names, incorrect dates of birth, missing address history or even other adults living at the address with similar names. There could be errors on your report caused by companies incorrectly classing a payment as late, or missed or saying you haven't paid a bill you didn't actually owe. If this happens you need to get in touch with the company involved straight away to point out their error and get them to correct the credit file. Ask them to confirm in writing that they have made a mistake and it is being corrected. Something else to watch out for is people who have either got hold of your personal information or taken out debts in your name. This is obviously more serious as it's fraud and you should contact the Police straight away. You can also get in touch with the credit reference agencies to inform them of the identity theft and get set up with something called CIFAS by applying for Protective Registration. This will make sure that no one else can apply for credit without you knowing about it first.
Work on paying down any outstanding debts
If you have any credit card balances, personal loans, mail order balances, hire purchase agreements and so on, you could start to pay down the balances. For example, paying down a credit card balance will improve your credit profile (as you've made payments on time), reduce your debt-to-income ratio and will allow you to borrow more money on a mortgage as your affordability will increase. Equally, making overpayments on some loans and debts will save you a lot of money in interest charged overall. Beware of any early repayment charges that may apply to any existing debts and see if you can make overpayments as part of the terms and conditions. Focussing on paying down existing debt can sometimes be more helpful than trying to save a higher deposit.
Consider applying for a credit-builder loan or secured credit card
If you know you need a first time buyer bad credit mortgage, before you even begin your mortgage application process you can apply for a couple of financial products which are designed to improve your credit profile. A credit-builder loan is designed for people with no credit profile or bad credit history. You agree to borrow a small set amount and repay in fixed instalments, usually over 12 months. The main difference between a credit-builder loan and a personal loan is that you will not get your funds straight away with the credit-builder loan. Instead, you make all your repayments and then get the money. This way, each time you make a repayment it is reported to the credit reference agencies and after a few months your score should start to improve. At the end of the term, you get your money back less any fees or interest paid.
A secured credit card is like any other credit card only you will need to provide a 'security sum', like a deposit, to the card provider that they will hold until you close the account. You will then be given a credit limit equal to the security sum that you can spend as revolving credit. Because the card provider has the security sum they can never be out of pocket and if you make your payments back on time you will improve your credit profile.
Alternative options for getting a mortgage with a poor credit rating
There are some alternatives to consider if you want a mortgage but have a poor credit rating:
Credit Unions
Credit unions offer mortgages to people in their local area, normally based on a specific city or county. They lend the money which has been deposited by their savers to people who need to borrow. They usually offer competitive rates and can be more flexible with underwriting as they have some discretion over their rules.
Joint Borrower, sole proprietor mortgage
If you have a poor credit profile, you could add someone else to your mortgage who would be classed as a good borrower. Usually, a direct relative such as Mum, Dad, brother or sister, the mortgage would be in joint names but the property would remain with you as the sole owner. These can be tricky to find and you need to make sure that all parties involved get some independent legal advice.
Deposit boost
If you have family who are willing to help you boost your chances by giving you some money to increase your deposit, there are a number of ways they can do this. They could just 'gift' you the money which means they are not expecting you to return the money and are not charging you any interest. There are some lenders who offer a 'springboard' type deposit deal where the gifted deposit will be put into a savings account in the giftor's name and can be taken back after a certain amount of time.
So, can you get a mortgage with a poor credit rating?
Yes, it is possible to get a mortgage with a bad credit rating but you may find it more challenging and you'll need to put in some extra effort. This is where a specialist broker like Twin Pine Mortgages can really help you as we have tons of experience, knowledge and contacts to make the whole process easier for you. We will do all the legwork and paperwork to get you the right mortgage for your needs. So if you have any questions about getting a mortgage with a poor credit rating please contact us on 024 7601 7747 or hello@twinpinemortgages.co.uk