What’s the difference between a bad credit mortgage and a standard mortgage?

Bad credit mortgages work in the same way as standard mortgages but generally charge higher mortgage rates. You may also have to pay higher fees to take out a mortgage for people with bad credit, which is why it’s important to always consider the total cost when you compare bad credit mortgages.

Why is interest higher on a bad credit mortgage?

The rate of interest you pay on a loan of any kind depends on how much of a risk the lender believes it is taking by lending to you - as well as other factors such as the underlying level of interest rates. So, interest rates on bad credit mortgages are higher because your credit history suggests you pose a higher risk of not making your repayments on time.

Can I get a 95% mortgage with bad credit?

Probably not. While it’s not impossible to get a 95% mortgage with bad credit, these deals (which enable you to buy a property with a 5% deposit) are usually only available to borrowers with good credit scores. To be approved for a bad credit mortgage, you will generally need a deposit of at least 15%.

Can I remortgage with bad credit?

Yes, you can remortgage with a low credit score. Again, your options will be more limited than for someone with a good credit score, and the rates on offer are likely to be less competitive. But the longer you keep making your mortgage repayments on time, the higher your credit score will go.

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Can I get a mortgage with bad credit?

Yes, you can often get a mortgage even if you have a low credit score. You won’t have as many options as someone with an unblemished record, but you may well be able to qualify for a bad credit mortgage, which is specifically designed for those who have a less pristine history.

You still have to meet certain criteria to be offered a bad credit mortgage, though, and you may have to provide a larger deposit on a mortgage of this kind. Bad credit mortgage rates and fees are also often higher than those available on standard mortgage deals.

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Applying for a mortgage with credit problems

If you have a bad credit record, your mortgage options are likely to be more limited and less competitive than those available to people with better scores. However, mortgage lenders conduct credit checks on all potential borrowers, so there’s no point in trying to hide your credit problems when applying for a mortgage.

The number of checks you have to go through, and the amount of evidence you have to provide, may be greater as a result of your credit file. And you’ll often have to put down a larger deposit – for instance, 20% rather than 5% or 10% for borrowers with unblemished credit histories.

But apart from that, the mortgage application process is the same whatever your credit score. To apply, you’ll need to provide details of:

Your income - a regular income of at least £15,000 a year is generally required
Your outgoings - from debt repayments to household bills
Your deposit - lenders may require evidence you have the necessary amount saved

It’s best to only make a formal application once you know you have a good chance of being accepted, as rejected credit applications can further damage your credit score.

A mortgage broker will often be able to help you work out how likely you are to be accepted by different lenders.

But if your chances of being accepted don’t look good, it may be more sensible to take steps to improve your position first.

Sort out your finances

Ways to take control of your money and improve your chances of getting a mortgage include:

Paying your bills and debt repayments on time
Reducing any outstanding debts where possible
Putting any spare money into a savings pot for your deposit

Check your credit record

Mistakes and out-of-date information can damage your credit score, so it’s worth checking the details are correct. You can do this by contacting the UK credit reference agencies TransUnion, Equifax and Experian and asking for copies of the reports they hold on you. The reports cost £2 each. If you want to monitor your file, you can also pay monthly for ongoing access.

Rebuild your credit score

There are many reasons why your credit score may have been damaged, from missed credit card payments to relationship breakdowns. Over time, you can build your score by showing you can be trusted to control your spending and pay bills on time. You may also be able to give it an immediate boost by closing unused credit accounts.

Save a bigger deposit

The bigger your deposit, the less risk to the lender, as owning a smaller percentage increases the likelihood it can sell the property without losing money should you default on the loan. That’s why the best bad credit mortgages are often only available to borrowers with larger deposits of, say, 40% of the property value.

Get a guarantor

If your credit score is preventing you from getting a mortgage, it may be worth considering asking a relative to act as a guarantor. Having a guarantor does not always mean your application will be accepted, but it should improve your chances, as the guarantor - usually a property owner - is responsible for making the repayments should you fail to do so. Remember their home could also be at risk should your mortgage fall into arrears.

Find a broker

Mortgage brokers can help you to find the best mortgages for bad credit and can sometimes use their relationships with lenders to convince them to accept borderline applications. Look for one who compares the whole market and/or specialises in bad credit mortgages. And remember to check how much they charge before signing up.

Should I apply for a mortgage with bad credit?

Mortgage rates for bad credit customers are higher than those for standard customers, so applying for a mortgage while your credit score is low will almost certainly mean paying more for your mortgage. But waiting will mean paying out more money in rent and potentially having to pay more for the type of property you want to buy (if house prices go up).

So, assuming you have the money saved for the required deposit, you need to weigh up the pros and cons of taking the time to improve your credit score to get a better mortgage deal and paying a higher interest rate for a bad credit mortgage.

Building your credit score before applying for a mortgage

Some credit problems, such as bankruptcy, will prevent you from getting a mortgage for a certain period. But whatever your credit history, there are ways to improve your credit score before applying for a mortgage.

Steps you can take include:

Ensuring you are on the electoral register - not being registered to vote can lower your credit score
Setting up Direct Debits to ensure all your bills and debt repayments are paid on time
Taking out a credit building credit card and paying it off in full every month
Paying down any existing debts, such as credit card balances and current account overdrafts

What’s the lowest credit score you can have to get a mortgage?

When you apply for a mortgage, the lender uses your credit score to assess the risk of you defaulting on your loan repayments. But there’s no set score you need to achieve to be approved for a mortgage.

Different lenders have different processes for deciding who to lend to, and your credit score is just one of the factors they take into account. Your income and outgoings are as important, if not more so, when it comes to being offered a mortgage deal.

Claire Flynn - Senior Mortgages Editor at Uswitch

Your credit history plays an important role in your chances of getting approved for a mortgage. You may need to pay higher rates if you have poor credit - speaking to an expert can help you find a deal that might be right for you”

Claire Flynn

Bad credit mortgages FAQs

Your creditworthiness is based on your perceived ability to repay a debt. It, therefore, depends on how much you earn and how much disposable income you have, as well as what your credit file shows about your management of past and present debts, including how much you owe, how much you have paid back and whether you have missed any repayments. Lenders take all these things into account when deciding whether to offer you a mortgage.

How can you get a mortgage with bad credit?

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