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How can you get mortgage with bad credit?

How can you get mortgage with bad credit?

There are mortgages available for people with a bad credit rating if you know where to look.

Perhaps you've missed a few credit card payments, had a County Court Judgment awarded against you or have previously been made bankrupt leaving you with a poor credit rating.

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If this has left you wondering whether you can get a mortgage, there's no need to panic, there are still options open to you.

Note that if you have bad credit, taking out a mortgage may not be the correct next step for you, so consider your options thoroughly.

What is a bad credit mortgage?

Strictly speaking bad credit mortgages don't exist - they are the same as standard mortgages, and are simply mortgages a lender will offer to people who may fail credit checks with other lenders.

Bad credit mortgages are also known as sub-prime mortgages or adverse credit mortgages, and can help people with poor credit histories get on the property ladder.

Interest rates and charges tend to be higher as people with poor credit ratings are deemed to be a higher risk.

But after a few years of paying a bad credit mortgage on time it should 'repair' your credit rating sufficiently to be able to move to a standard mortgage at a lower rate.

Can you get a mortgage with bad credit?

Interest rates on bad credit mortgages are higher than standard mortgages and you will probably need a larger deposit, but there are still options available.

They won't work in conjunction with any government scheme such as Help to Buy or Shared Ownership and usually don't accept applications from people made bankrupt in the past six years – unless your credit file is now clear with no defaults showing.

Applicants will still need a steady income and possibly may need a larger than typical deposit making up at least 15% or more of the property value.

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How do I know if I have adverse credit?

Credit scores can be harmed by a number of reasons but there are some clear causes why you might have a bad credit rating.

  • Having been declared bankrupt, or have had a debt management plan, IVA etc.
  • Missed credit card, loan or mortgage payments.
  • Having County Court Judgements against your name.

It is always a good idea to have a look at your credit report before you apply for any kind of mortgage – bad credit or not.

See the section below for tips to help improve your credit rating.

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Getting a mortgage with bad credit - how does it work?

A bad credit mortgage is similar to a standard mortgage, but they have higher interest rates and charges.

Many types of bad credit mortgage deals are available, for example, fixed, variable, and discounted rates, but that doesn't mean they will have better rates than a standard mortgage. The opposite of this is actually more likely to be the case.

The reason for this is that the mortgage provider has less reason to loan you a larger amount of money at a lower interest rate if your credit history is poor.

The risk on their side is mitigated by the higher interest rate and larger deposit you pay.

You will also probably need a deposit of at least around 15% or more of the value of the property. If you can get to the 30% mark or higher that would be better for your chances of being approved.

If you'd like to learn more about loan-to-value (LTV) ratios then visit our dedicated pages:

How to get a mortgage with bad credit

Before looking for any mortgage it is a good idea to check what is on your credit reference agency file to see if you have any credit problems.

You should also avoid making lots of applications for credit, as these searches will affect your credit rating.

You may also wish to speak to your current account provider to see what mortgages they offer and explain to them your credit history situation. If they have no products suitable for you, then at least you know without having to make an application.

It's also highly recommended that you compare a wide range of mortgages to find the best deal for you. It's essential that you compare the total cost of different mortgages, taking into account fees and charges too.

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How to remortgage with bad credit

Remortgaging with bad credit might not be worth it and sticking with your current lender could be preferable.

If your credit score has worsened since you took out your current mortgage you may actually get a worse rate by remortgaging. Meaning you may be best off staying put until your credit score has improved. And remember when remortgaging exit and booking fees will eat into the money you could potentially save from lower rate.

If you do think you will be better off by remortgaging, despite having a bad credit  score the process is just the same as getting a bad credit mortgage, but you are likely to be in a better position as you will have the equity of your home to boost your deposit.

How much could I borrow with a bad credit mortgage?

If you can get a mortgage, the amount you can borrow is typically determined by your income (salary, benefits, pension and other sources of income) multiplied by a set figure. However, lenders are also increasingly taking other factors and outgoings into account.

Read more on how the amount you could borrow with a mortgage is decided.

How can I improve my bad credit rating?

There are some things you can do, which could improve your credit rating and possibly increase your chances of being approved for a bad credit mortgage.

  • Make sure you're on the electoral roll.
  • Pay your bills on time and in full.
  • Close any credit accounts you don't use.
  • Consider applying for a credit builder credit card to improve your credit rating.
  • Sustainable borrowing with a guarantor loan can also improve your credit score.
  • Check your credit report regularly to make sure that all the information is correct. If you notice any errors, contact the relevant lender and ask for them to be corrected.

Remember, doing all of these things is no guarantee that your credit score will have improved enough to be approved for a bad-credit mortgage. It takes time for your credit score to recover if you have been rejected multiple times or missed multiple repayments.

Each mortgage provider will have their own criteria for eligibility, but generally these amendments to your personal finance habits could help improve your score.

Find out more about credit reports here and see if your score can tell you more about your finances and what you can do to improve your credit rating.

Check your credit rating

Checking your credit score could save you the trouble of applying for a bad credit mortgage and having the rejected application show up on your profile to future credit and mortgage providers.

Use our comparison table below to find a credit reference agency who can show you your credit report and score.

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