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Can you get a mortgage with bad credit?

If you have poor credit, getting a mortgage is difficult but not impossible. Because lenders view you as higher risk, you can expect to pay a higher interest rate and higher mortgage fees. You might also need to put down a bigger deposit (as much as 15%) than someone with an excellent credit score, which means there may be more restrictions on the amount you can borrow.

Some lenders specialise in so-called bad credit mortgages, also known as adverse credit or sub-prime mortgages, which are designed for those with poor credit.

There’s no hard and fast rule of what lenders consider bad credit, and there’s no single credit score that all lenders use. However, any adverse credit action over the past six years could affect your credit rating and ability to get a mortgage from a mainstream lender.

How to compare bad credit mortgage deals

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Who is Mojo?

Mojo is a free online mortgage broker. We partner with them so you can get all the mortgage support you need in one place.

Mojo will find out about your circumstances, check your eligibility, and search across the whole of market to help you secure the best mortgage for you.

An expert will be on hand to offer help and advice and you will be supported through each step of your mortgage application.

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How is my mortgage application assessed?

When you apply for a mortgage, lenders will check your credit score to understand how well you manage your finances. Your credit score is compiled by separate credit reference agencies, with the three main ones being Experian, Equifax and TransUnion. Each agency will have its own specific method of calculating your credit score, which means your score can vary across the three. 

  • Experian: poor 561 to 720, very poor 0 to 560

  • Equifax: poor 439 to 530, very poor 0 to 438 

  • TransUnion: poor 551 to 565, very poor 0 to 550 

Lenders might work with all three credit reference agencies, or with just one or two. 

If you’re struggling to get accepted for a mortgage with a mainstream lender because of your credit rating, there are several specialist lenders who will be more willing to accept those with poor credit. These include United Trust Bank, Kensington Mortgages, and Atom Bank.

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Why is it difficult to get a mortgage with bad credit?

When you apply for a mortgage, lenders will want to see that you’ve borrowed responsibly in the past and that you have a good history of repaying what you owe on time. Mortgages are long-term loans, so lenders will want to examine your long-term credit history.

If you’ve had difficulty repaying loans before, you’ll be viewed as higher risk, which means lenders will be more reluctant to let you borrow. 

Issues that can impact your credit score include:

  • Late or missed payments on credit agreements

  • Exceeding your agreed credit limit or overdraft

  • Falling behind on mortgage payments

  • Previous repossessions

  • County Court Judgments (CCJs)

  • Bankruptcy, debt management plans or individual voluntary agreements (IVAs)

  • Sharing an account with someone who has debt problems

If you find yourself being turned away by mainstream lenders, several mortgage lenders accept defaults and will be able to offer you a mortgage, even if it is at a much higher interest rate.

How to get a mortgage with bad credit?

If you’re looking to apply for a mortgage and you have bad credit, you can take a number of steps to increase your chances of acceptance. 

Sort your finances

The first step is to make sure your finances are in as good a place as possible. Try to reduce any existing debt and pay bills and other credit repayments on time. It’s also worth reducing your spending where you can and aiming to keep your monthly outgoings consistent. Avoid taking out further credit before applying for a mortgage, too.

Check your credit record

Use a free online service to check your credit record. This will let you see your credit score, as well as when you’ve missed payments in the past. If you spot any mistakes on your credit report, ask the credit reference agency to correct them as soon as possible. You’ll also be able to see whether you are still financially linked to anyone – for example, if you previously had a joint current account with a partner. Being financially associated with someone can affect how other lenders view you, so if your joint account is now closed, ask the credit reference agency to remove the financial association.

Rebuild your credit score

Simple steps such as making sure you’re registered on the electoral roll (which lenders use to verify your identity and address) and paying bills on time can help improve your credit score, as can remaining in the same job for a number of years with a regular income.You could also consider applying for a credit builder credit card. This type of card typically has a low credit limit and high-interest rate, so it’s important that you repay your balance in full each month. But used sensibly, credit-builder cards can help you to improve your credit score over time.

Save for a bigger deposit

Taking the time to save up as much of a deposit as possible will give you access to better mortgage rates and save you money in the long term. You may find that lenders ask for a 20-30% deposit if you have poor credit, compared to the 5-10% you might need if you have good credit.

Make your rent count

If you currently rent your home, consider using a service such as Canopy, Credit Ladder or LOQBOX so that agencies include your regular rent payments in your credit report. This can help improve your credit history.

Accept help from family

Most lenders will accept a deposit that’s ‘gifted’ from a family member which can help you to get on the property ladder faster. But the money must not be a loan and you must be under no obligation to pay it back to the person who gave it to you.

Get a guarantor

If you’re struggling to get accepted for a mortgage due to your credit rating, you could consider getting a mortgage with a guarantor. Your guarantor will usually need to be a family member who is also a homeowner, and they must be prepared to meet your monthly mortgage repayments if you’re unable to. However, this option needs to be considered carefully. If your guarantor is unable to meet the repayments, their own home could be at risk. What’s more, you and your guarantor will be linked financially, so any missed payments will affect both your credit ratings.

Speak to an advisor

Speaking to a mortgage broker can help you find the best mortgage option for you and even help you with your application. A broker will be able to approach a range of mortgage lenders for bad credit to help you find one that’s more likely to accept your application, based on your circumstances. 

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How do bad credit mortgages work?

Mortgages for those with bad credit work in the same way as regular mortgages but will usually have higher interest rates and fees. 

Most mortgages are now linked to the Bank of England base rate, but some may track a rate known as SONIA (Sterling Overnight Index Average). If you take out a bad credit mortgage, providing you keep up with your monthly repayments, your credit score should start to improve over the next two to three years, and you may be able to remortgage to a better rate. 

To give you an example of how much you could save with a standard rate mortgage versus a bad credit mortgage rate, take a look at the below:

If you were paying 3.95% on a £150,000 bad credit mortgage over 25 years, you’d pay £788 a month and £236,286 in total. 

In comparison, with a regular mortgage at 2.3%, you’d pay £658 a month (£130 less) and £197,375 in total (£38,911 less).

What are the best bad credit mortgage rates?

The tables below outline the best 5 year fixed rate mortgages (the most popular mortgage type) for borrowers with some recent adverse credit (based on a loan of £150,000). How much you pay will depend on the size of the deposit you can put down and your loan-to-value (LTV).

House purchase

Updated 23 March 2022
LTVProviderInitial rate payableFees payableAdverse accepted
60%United Trust Bank Ltd3.95%£1,495No CCJs in last 2 years, maximum of 5 over 2 years old, providing all total less than £5k, no heavy adverse credit.
75%The Mortgage Lender3.35%£1,145No CCJs in last 36 months. Unsecured arrears - Maximum 2 missed payments in last 6 months with most recent paid. Secured arrears - 0 in 36 months.
80%The Mortgage Lender3.68%£1,145No CCJs in last 36 months. Unsecured Arrears - Maximum 2 missed payments in last 6 months with most recent paid. Secured Arrears - 0 in 36 months.
90%Kensington5.49%£1,299Any CCJs must be satisfied. Secured arrears & defaults – no older than 24 months Unsecured arrears - maximum status of 2 in last 12 months.

Source: Defaqto

Re-mortgage

Updated 23 March 2022
LTVProviderInitial rate payableFees payableAdverse accepted
60%United Trust Bank Ltd3.95%£1,495No CCJs in last 2 years, maximum of 5 over 2 years old, providing all total less than £5k, no heavy adverse credit.
75%Precise Mortgages3.44%£995No CCJs in last 24 months. No arrears in the past 12 months, 1 in the last 36 months permitted (loans must be up to date). No defaults in the past 24 months.
80%The Mortgage Lender3.68%£1,145No CCJs in last 36 months. Unsecured arrears - Maximum 2 missed payments in last 6 months with most recent paid. Secured Arrears - 0 in 36 months.
90%Kensington5.49%£1,299Any CCJs must be satisfied. Secured arrears & defaults – no older than 24 months Unsecured arrears - maximum status of 2 in last 12 months.

Source: Defaqto

Given that, at the time of writing, one of the top five-year fixed rate deals for those with good credit was from Halifax and charged an initial rate of 2.3% (90% LTV), you can see that rates are generally a fair bit higher for those with adverse credit. 

However, this will depend on the severity of the circumstances - rates can fall to below 3% if the adverse credit has been settled and occurred more than three years ago.

Should I apply for a mortgage with bad credit?

If you have poor credit, keep in mind that defaults will stay on your credit file for six years, even if you pay off your debt in full, and lenders will be able to see this when you apply for a mortgage. For this reason, you might prefer to wait until any defaults or other adverse credit has disappeared from your credit file before applying for a mortgage. If you’d prefer not to wait that long, make sure you weigh up both the pros and cons of applying for a mortgage with bad credit.

Advantages

  • You’ll become a homeowner sooner

  • You can lock into a mortgage deal before interest rates rise further

  • You can buy at current house prices – the cost of your dream home might increase if you wait

Disadvantages

  • You’ll need a larger deposit compared to someone with no credit problems

  • You’re likely to pay a higher rate of interest, making your mortgage more expensive

  • Your choice of mortgages will be more limited

Bad credit mortgage FAQs

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Overall representative example

Based on borrowing£170,000 over 25 yearsThe overall cost of comparison4.28% APRC Representative
Initial rate2.87% fixed for 2 years (24 instalments of £820.17pm)Subsequent rate (SVR)4.51% variable for the remaining 23 years (276 instalments of £931.10pm)
Lender fee£528Total amount payable£277,194.92

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