If you have a poor credit score and you’re thinking about buying a home, there are mortgages for people with bad credit available 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, had a County Court Judgment (CCJ) awarded against you, or have previously been made bankrupt, there are lots of reasons you might be left with a bad credit rating.
Getting a mortgage with bad credit is not impossible; there are still some options open to you. Using a specialist 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.
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 subprime 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
Paying back a mortgage for bad credit on time can help repair your credit rating, however, and when you’ve paid off some of your mortgage you may be able to move to a standard mortgage at a lower rate
Mortgage lenders have tightened up their affordability requirements in recent years, due to both economic difficulties and stricter lending rules.
This does mean there are fewer options for anyone thinking of buying a house with bad credit in the UK. It is still possible to get a mortgage or remortgage for bad credit - if you’re prepared to put up a bigger deposit and pay a higher interest rate.
Exceptions: when you can’t get a bad credit mortgage
Mortgages for 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 bad credit mortgages, applicants will also need a steady income and will often require a deposit of more than 15% of the property value.
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
Had a home repossessed in the past
The good news is there are also lots of ways to improve your credit rating - check out our tips below.
A bad credit mortgage is similar to a standard mortgage, but with higher interest rates and charges.
Most of the mortgages for 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:
When you apply for your mortgage the lender will ask if you have had past problems. You will be expected to provide more detail to back up your mortgage application as the lender will need to be reassured you can afford the mortgage repayments. So you may need to give more evidence such as extra payslips or evidence of income.
Before you start your application you might want to take the following steps to make sure you are in a position to prove you can afford any repayments. Here are the top five things you can do to help you get a mortgage for bad credit:
Make sure you pay all outstanding, and long term, credit card debt and utility bills. You might also want to use this time to try and save more towards a deposit. Look at switching household bills and consider cancelling subscriptions or services you don’t use.
This is also the time to see your credit report. It will list any payments you’ve missed and give you an idea of your credit score. You can then work to repair your credit score, by making sure you settle unpaid bills, and make sure you pay all bills and credit agreements on time.
The larger the deposit you can save up the more likely you are to have your mortgage application accepted. If you can aim to have at least 15%, so an 85% loan to value mortgage, a lender may look more favourably on your applications.
If you are offered help from family members, it needs to be a gift and not a loan, as this will count as extra debt. Remember that if you receive any money as a gift then your solicitor will also want to carry out a money laundering check, so make sure the person giving you the money has documentation to show where the money came from.
This is another way of making sure your mortgage application is accepted but whoever guarantees you the money will also be putting their home at risk by offering to underwrite your mortgage.
A specialist mortgage adviser could help you source an adverse credit mortgage. They are familiar with different needs involved when making a mortgage application with a poor credit score. They will also be more familiar with the requirements of different lenders and might be able to source a better deal.
Other things you can do to improve your chances of getting a mortgage:
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
Bad credit remortgage deals are available, however, 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 with bad credit.
Even if you are paying 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 may be best off staying put until your credit score has improved - especially once you take exit and booking fees into account.
If you do have bad credit and you decide to take out a remortgage deal with poor credit, the process is the same as applying for your first 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.
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.
Find out how lenders decide how much you can borrow with our quick guide.