What To Consider Before Applying For A Bad Credit Mortgage

July 13, 2023

It is still possible to get a mortgage even with a poor credit score. However, the process will not be as straightforward as it is for a customer with a fair or good credit history. Here are some of the factors that you should consider before applying.

Why is it more difficult to get a mortgage with poor credit?

A mortgage is likely to be the largest and longest term loan you will take on in your lifetime, and so a lender will want to see evidence that you are capable of meeting the repayments. As part of their assessment, most lenders will consider your credit history. 

This is a record of your past financial performance that is collected by credit reference agencies (CRAs) and passed onto financial institutions. The data includes any adverse incidents, such as missed or late payments on loans, utility bills, and any other form of credit agreement, and also County Court Judgements (CCJs) and bankruptcies. 

Your credit report also includes your current and previous addresses, financial links to people you have joint accounts with, and details of previous applications for credit you have made. If you have a poor credit history, lenders will see this as evidence that you may be unreliable in managing your finances and you may be a high-risk borrower.

Is it still worth applying for a mortgage with bad credit?

There are specialist lenders who are willing to take on high risk customers. However, you may need to put down a larger than average deposit (of at least 15%), and you could also be charged higher than average interest rates and mortgage fees. You will have a more limited choice of products than a regular mortgage customer.

There is no fixed assessment criteria that is used to determine what constitutes bad credit, but in general the longer ago an adverse event occurred, the less impact it will have on your application. Most information is removed from your credit report after six years, and there is no such thing as a ‘credit blacklist’.

Some issues are considered to be more serious than others. Lenders will usually take into account the frequency with which incidents occurred, how much money was involved, and if any attempt was made to repay it. One or two late payments on a credit card will be less significant than multiple mortgage defaults or CCJS or bankruptcies.

What are the advantages of a bad credit mortgage?

Even a mortgage with higher interest rates can be cheaper than renting in some areas of the UK. It also means that you will be on the property ladder and set to achieve your goal of home ownership sooner rather than later, when house prices could be even higher. 

Once you have a deal, you also have the opportunity to rebuild your credit history and may be able to apply for a better rate in the future. It is important to know the right lenders to approach, as a rejected application will count against your credit score further. Therefore it is advisable to seek help from an experienced mortgage broker.

If you are looking for IVA mortgage specialists, please get in touch with us today.

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

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