How Does Bad Credit Affect A First Time Buyer?

February 15, 2023

Getting a mortgage as a first time buyer  takes a lot of planning and hard work, from saving up for enough deposit, to securing a steady income and demonstrating to a lender that you are financially responsible. If you have a low credit score, this process is more difficult and you may even have been told that you won’t be able to get a mortgage deal.

However, while this may be true of the major high street lenders, there are specialist lenders who are willing to consider applicants with a poor credit history. They will look at your whole financial situation rather than just make a judgement based on your credit score, which can sometimes mean that you are able to borrow the amount you need.

As well as your credit score, a lender will take into account your current household income and your level of outgoings in order to check if the amount you want to borrow is affordable. Therefore it is a good idea to budget carefully, and trim back on non-essential spending such as entertainment and eating out in the months before your mortgage application.

The amount of deposit you will be required to put down may be higher if you have bad credit, so if possible save as much as you can. Most specialist lenders will look into the specific reasons for your bad credit score. 

If you can demonstrate that it was due to circumstances beyond your control, such as illness, redundancy, or being owed money from clients, then they may take this into account. It is important to state your case clearly on your application, with supporting evidence if necessary. 

How long ago the adverse credit event occurred is also a factor; most incidents will stay on your file for six years then be removed, except for the most serious issues such as bankruptcy which may remain for longer. The nature of the credit issue is also a factor, because they all have a different impact on the way your application is assessed.

Some of the most common credit issues include missed payments, defaults (when a bill or repayment isn’t made even after you have received an official warning letter from the creditor), and County Court Judgements (when a creditor takes court action against you). 

A lender will look at how much money was involved, whether they were single or multiple incidents, and what effort, if any, was made to repay the debt. 

If you have more serious issues, such as a history of payday loans, a Debt Management Plan or a bankruptcy, then you may be advised to try and improve your credit score before making a mortgage application. However, it also depends to some extent on your current financial situation and how much of a risk you will represent to the lender. 

It may well be more possible than you think to get a mortgage. If you would like some further advice from a specialist mortgage brokers for bankruptcy, please contact us today.

 

Your home may be repossessed if you do not keep up with your mortgage repayments.

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