There are all sorts of reasons you might have a low credit score or a bad credit record. In most cases, you can find a competitive mortgage with support from an experienced broker.
Bad credit ranges enormously.
You might have a couple of late credit card payments from a few years ago or could have a record of serious issues such as repossessions or bankruptcy.
Every lender differs, so the key is to apply to an appropriate mortgage provider who won’t automatically reject your application because of an anomaly on your credit file!
Any credit rating under 509 is considered low by Equifax, but note that there are several credit bureaus, all with different scoring and reporting systems.
Therefore, two lenders might be assessing very different information to decide whether to approve your mortgage!
Today the Revolution Brokers team explains how you can get a mortgage with bad credit and what factors will make a difference to your borrowing prospects.
For more advice or support with your application, please call us on 0330 304 3040 or drop a message to info@revolutionbrokers.co.uk.
How Does Bad Credit Impact Your Mortgage Application?
Credit issues are an obstacle to finding a mortgage, but it doesn’t mean you won’t find an appropriate lender.
High street banks tend to have stricter policies, and some will reject applicants with a credit score below a nominal value.
Others take a case-by-case basis, and specialist bad credit lenders offer products designed to support those with adverse credit scores.
A broker is invaluable in the process since they can signpost your application to suitable lenders, negotiate rates and terms on your behalf, and liaise with the lender to provide context and strengthen your application.
Three Ways to Find a Mortgage With Bad Credit
Let’s run through some of the practical steps you can take to find a mortgage with bad credit.
- Apply to a lender who doesn’t rely solely on credit scoring.
As we’ve mentioned, some banks have rigid policies and make decisions based on a fixed credit score threshold. Others aren’t too concerned with your score but want to explore your current financial stability and look at ways to offset the risk.
Niche lenders view applicants more as individuals. They may consider a mortgage where there are credit issues if they can see that these happened a long time ago, your credit has been in good standing since, or know that there was an unavoidable event that caused the problem – such as being made redundant.
- Increase your deposit value.
Any Loan to Value (LTV) over 80% usually means your application goes through two approval processes.
First, the lender needs to decide to accept the application, and then their underwriter needs to sign off on the offer – their job is to protect the lender as an insurer, so run through detailed risk assessments.
If you can offer a 20% deposit, first, you’ll instantly improve your chances of approval since the verification process becomes much more straightforward.
Second, the lender will be in a better position to approve since they aren’t taking as significant a risk and will likely recoup their lending if the property ends up in a repossession scenario.
Third, if you have a lower LTV, you will attract more competitive interest rates.
- Apply to a bad credit specialist lender.
Finally, a broker will often recommend speciality lenders that price products based on risk and don’t reject any applicant out of hand without assessing the circumstances.
Interest rates on bad credit mortgages are usually higher. Still, they can provide a valuable way to purchase a home and then remortgage onto a better rate when the credit score has improved.
For example, a credit default remains on your file for six years. If you haven’t had any problems since you can remortgage onto a lower interest product when the six years is up, and your credit file is clear.
Can I Use a Mortgage to Consolidate Debts?
Yes, very possibly – many people choose to take out a slightly higher mortgage than required, or remortgage, to incorporate the refinancing of other unsecured or short-term debts.
The benefit is that you have one monthly repayment, usually at a significantly lower interest rate.
This repayment structure can help reorganise your finances and ensure you have a manageable amount to pay back each month.
However, the downside is that all loans incorporated into a mortgage are secured against your home. Unlike an unsecured debt, such as a credit card, you could lose your home if you don’t keep up with the repayment schedule.
What Can I Do to Improve My Credit Score Before a Mortgage Application?
Several actions are available to help you improve your credit score, or update your credit history, before applying for a mortgage.
- Check your credit report – there are several credit bureaus, and each offers a reporting service whereby you can access your personal file. It would help to verify any errors with the bureau to ensure all resolved debts have been removed.
- Even if by a little, reducing existing debt will have a positive impact on your credit score. It can be a toss-up between paying back debt and saving a larger deposit – give Revolution a call for tailored advice about the best options for you.
- Close any unused accounts. Even if you never use a credit card, your credit report will include the facility on offer in your credit report.
It is far from impossible to get a mortgage with bad credit, but understanding your credit report, and making sure it’s accurate, is the first step in taking control of your credit history challenges.
In some cases, we might recommend waiting a few months if you have a previous credit issue that is due to expire from your record.
For further information about UK bad credit mortgages or how to improve your chances of approval, please give the Revolution team a call on 0330 304 3040 or email us via info@revolutionbrokers.co.uk.
