Buying a house with bad credit

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If you have bad credit and are thinking about buying a home, there are mortgages for people with bad credit and it may be possible to remortgage with bad credit – if you know where to look.

Whether you’ve missed a few credit card payments, received a county court judgment, or been bankrupt in the past, there are plenty of reasons you could end up with a bad credit score. .

Is Buying a Home with Bad Credit Possible?

Getting a mortgage with bad credit is not impossible; there are still options available to you.

Using a bad credit mortgage broker can help. Remember, if you have bad credit, taking out a mortgage might not be the right decision, so it’s important to think carefully before you move forward.

What is bad credit mortgage?

Strictly speaking, bad credit mortgages don’t exist – they’re just standard mortgages that some lenders offer to people who may fail credit checks elsewhere.

Mortgages of this type were formerly known as subprime mortgages. Now, they are more commonly referred to as bad credit mortgages and are designed to help people with bad credit move up the property ladder.

Bad credit mortgage rates and fees tend to be higher because lenders consider people with bad credit to be at higher risk.

But paying off a bad credit mortgage on time should help you “fix” your credit rating, so you can switch to a standard mortgage at a lower rate.

Can You Get A Mortgage With Bad Credit?

Mortgage lenders have tightened their affordability requirements in recent years, due to both economic hardship and tighter rules. As a result, there are fewer options for anyone considering buying a house with bad credit in the UK. However, it’s often still possible to get a mortgage or re-mortgage for bad credit – if you’re willing to make a larger deposit and pay a higher interest rate.

Bad credit mortgages will not work in conjunction with government programs such as Shared ownership and are rarely available to those who have gone bankrupt in the past six years – unless your credit report is now clear and no defaults are visible.

To be approved for bad credit mortgages, applicants will also need a stable income and will often need a down payment of more than 15% of the value of the property.

How do I know if I have bad or bad credit?

There are many ways to unintentionally damage your credit score. That’s why it’s always a good idea to take a look at your credit report before you apply for a mortgage, whether it’s bad credit or not.

But there are also some obvious reasons why you might have a bad credit score. These include:

  • Have been declared bankrupt, or have had a debt management plan, IVA etc.

  • Missing credit card, loan or mortgage payments

  • Have county court judgments against your name

The good news is that there are plenty of ways to improve your credit score, too – check out our tips below.

Mortgages For People With Bad Credit – How Do They Work?

A bad credit mortgage is similar to a standard mortgage, but with higher interest rates and fees.

Most mortgages for people with bad credit are fixed rate agreements. But whether you choose a fixed rate contract or an adjustable rate mortgage, you will generally pay more interest than a borrower with a good credit rating.

This is because the mortgage provider has less reason to lend you more money at a lower interest rate if your credit history is poor.

So, in exchange for your acceptance as a higher risk customer, they ask for a higher interest rate and a larger deposit.

The size of your deposit will generally need to be at least 15% of the value of the property. But if you can hit the 30% mark or more, it will increase your chances of getting approved.

If you want to know more about loan-to-value (LTV) ratios, visit our dedicated pages:

How to get a mortgage with bad credit

Before looking for a mortgage, it’s a good idea to check what’s on your credit reference agency record to see if you have any credit problems.

You should also avoid doing a lot of different mortgage applications, as this research will affect your credit rating – especially if you are planning to buy a home with bad credit.

If you want to know how to get a mortgage with bad credit, one option is to talk to your checking account provider to see what mortgages they offer to someone with your credit history. If they don’t have products that are right for you, you can at least avoid having your application turned down.

It’s also important to compare a wide variety of mortgages to find the best deal for you, taking into account the fees and charges, as well as the interest rate you’ll pay.

Can You Remortgage With Bad Credit?

However, if your credit rating has deteriorated since you took out your existing mortgage, it may be cheaper to stick with your current lender than to remortgage on a bad credit deal.

Even if you pay your lender’s Standard Variable Rate (SVR), deciding to remortgage with bad credit could mean having to pay a higher interest rate to another lender. So, you might be better off sticking around until your credit score has improved, especially after you factor in exit and booking fees.

If you have bad credit and decide to take out a remortgage deal with bad credit, the process is the same as for your first mortgage. However, you are probably in a better position because you should have at least some equity in your home to increase your deposit.

How Much Can I Borrow With a Bad Credit Mortgage?

As with standard mortgages, the amount you can borrow on a bad credit mortgage will depend on your income, such as your salary, and how much will be used to pay for essentials such as utility bills and food. , as well as any other debt repayment. . You can read more about how lenders decide how much you can borrow with a mortgage with our quick guide.

How Can I Improve My Chances Of Buying A Home With Bad Credit?

Here are a few ways to improve your credit rating – and potentially increase your chances of being approved for a bad credit mortgage -:

  • Make sure you are on the voters list

  • Pay your bills on time and in full

  • Consider using a credit builder credit card to improve your credit rating

  • Consider taking out a guarantor loan

  • Regularly check your credit report to make sure all the information is correct. If you find any errors, contact the relevant lender and request that they be corrected.

Each mortgage lender will have their own eligibility criteria, but generally these changes to your personal financial habits could help improve your score.

However, even if you do all of these things, there is no guarantee that your credit score will improve enough to be approved for a bad credit mortgage. It takes time for your credit score to recover if you’ve been rejected multiple times or missed multiple repayments.

Learn more about credit reports, and see if your score can tell you more about your finances and what you can do to improve your credit score.

How to check your credit score

Checking your credit score could prevent you from further damaging your credit rating by being rejected for a bad credit mortgage.

Use our comparison chart to find a credit reference agency that can show you your credit report and score.

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