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How can you get mortgage with bad credit?

There are “bad credit” mortgages available for people with low credit scores - if you know where to look.

How can you get mortgage with bad credit?

Whether you've missed a few credit card payments, had a County Court Judgment awarded against you, or have previously been made bankrupt, there are lots of reasons you might be left with a bad credit rating.

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But getting a mortgage with bad credit is not impossible; there are still some options open to you.

Using a bad credit mortgage broker may help. Just remember that if you have bad credit, taking out a mortgage may not be the right move, so it’s important to think carefully before going ahead.

What is a bad credit mortgage?

Strictly speaking, bad credit mortgages don't exist - they are simply standard mortgages certain lenders offer to people who may fail credit checks elsewhere.

Mortgages of this kind used to be known as sub-prime mortgages. Now they are more commonly called adverse credit mortgages, and are designed to help people with poor credit histories get on the property ladder.

Bad credit mortgage rates and charges tend to be higher, as lenders deem people with poor credit ratings to be a higher risk.

But paying a bad credit mortgage on time should help to 'repair' your credit rating, so you can move to a standard mortgage at a lower rate.

Can you get a mortgage with bad credit?

Mortgage lenders have tightened up their affordability requirements in recent years, due to both economic difficulties and stricter rules. There are fewer bad credit mortgages available in the UK as a result. However, it’s often still possible to get a mortgage with a bad credit history - if you’re prepared to put up a bigger deposit and pay a higher interest rate. 

Mortgages for people with bad credit won't work in conjunction with government schemes such as Shared Ownership and are rarely available to those made bankrupt in the past six years – unless your credit file is now clear with no defaults showing.

To be approved for a bad credit mortgage, applicants will also need a steady income and will often require a deposit of more than 15% of the property value.

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How do I know if I have adverse credit?

There are lots of ways you can unintentionally damage your credit score. That’s why it’s always a good idea to have a look at your credit report before you apply for any kind of mortgage – bad credit or not.

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

  • Having been declared bankrupt, or having had a debt management plan, IVA etc.

  • Missing credit card, loan or mortgage payments

  • Having County Court Judgements against your name

The good news is there are also lots of ways to improve your credit rating - check out our tips below. 

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

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

Most of the mortgages available to people with bad credit are fixed rate deals. But whether you choose a fixed rate deal or a variable rate mortgage, you will usually pay more interest than a borrower with a good credit score.

This is because 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.

So in return for taking you on as a higher risk customer, they ask for a higher interest rate and a larger deposit.

The size of your deposit will usually need to be at least 15% of the value of the property. But if you can get to the 30% mark or higher, it will improve 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’s 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 different mortgages, as these searches will affect your credit rating.

One option is to speak to your current account provider to see what mortgages they offer to someone with your credit history. If they have no products suitable for you, then at least you can avoid having your application rejected.

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

How to remortgage with bad credit

If your credit rating has worsened since you took out your existing mortgage, it may prove cheaper to stick with your current lender than to remortgage on to a bad credit deal.

Even if you are paying your lender’s standard variable rate (SVR), remortgaging with bad credit could mean having to pay a higher interest rate to another lender. So, you may be best off staying put until your credit score has improved - especially once you take exit and booking fees into account.  

If you think you will be better off by remortgaging despite having a bad credit score, the process is the same as applying for your first bad credit mortgage. However, you are likely to be in a better position as you should have at least some equity in your home to boost 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, for example your salary, and how much of that goes towards paying for essentials such as utility bills and food, as well as any other debt repayments.  You can find out more about how lenders decide how much you can borrow with a mortgage with our quick guide.

How can I improve my bad credit rating?

Ways to improve your credit rating - and potentially increase your chances of being approved for a bad credit mortgage - include:

  • Make sure you're on the electoral roll

  • Pay your bills on time and in full

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

  • Think about taking out a guarantor loan

  • Check your credit report regularly to make sure all the information is correct. If you notice any errors, contact the relevant lender and ask for them to be corrected

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

However even if you do all 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 have been rejected multiple times or missed multiple repayments.

Find out 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 rating.

How to check your credit rating

Checking your credit score could save you damaging your credit rating even more by being rejected for a bad credit mortgage.

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

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