Can I Get a Mortgage With Bad Credit?
The short answer is: possibly, yes.
Having missed payments, defaulted on a credit agreement or had other financial difficulties doesn't automatically mean you can't get a mortgage.
What matters is the type of credit issue you've had, how serious it was, how long ago it happened and what your financial position looks like today.
I've spoken to plenty of clients who initially assumed their credit history had ruled out getting a mortgage altogether. In some cases, there were still lenders prepared to consider their circumstances.
The important thing is not to assume that one lender's decision represents the whole mortgage market.
What counts as bad credit?
“Bad credit” can mean different things to different people.
A lender may consider things such as:
Missed or late payments
Defaults
County Court Judgements (CCJs)
Individual Voluntary Arrangements (IVAs)
Bankruptcy
Mortgage arrears
Credit card arrears
Payday loans
Debt management arrangements
The detail behind the issue is often just as important as the issue itself.
For example, a missed credit card payment several years ago is very different from a recent mortgage arrear or a bankruptcy.
That's why I wouldn't advise someone to simply look at their credit score and assume they know whether they'll be able to get a mortgage.
How long ago did the problem happen?
This can make a significant difference.
Lenders will generally want to understand when the credit problem occurred and how your finances have been since.
Someone who had a financial problem five years ago but has maintained their commitments successfully ever since may be viewed very differently from someone who has several recent missed payments.
This is one of the areas where I often find clients are harder on themselves than they need to be.
I've spoken to people who have had problems in the past and assumed those problems would follow them forever.
They don't necessarily.
Your credit history provides a picture of your financial behaviour, but lenders will also consider your current circumstances.
What about a CCJ?
A CCJ doesn't automatically mean you can't get a mortgage.
However, the circumstances surrounding it will matter.
A lender may look at:
When the CCJ was registered
How much it was for
Whether it has been satisfied
How recently it occurred
Whether there are any other credit issues
Again, there isn't a simple yes or no answer.
One lender may have criteria that works for your circumstances, while another may not consider the application.
What if I've been bankrupt?
Bankruptcy is a more serious credit event, but even this doesn't necessarily mean you'll never be able to get a mortgage.
The amount of time that has passed since the bankruptcy, your current financial position and the lender's criteria will all be important.
These cases need to be approached carefully.
It's usually much better to understand what lenders may be prepared to consider before making a mortgage application rather than applying to several lenders and hoping one says yes.
Does having a bigger deposit help?
It can.
If you have a history of adverse credit, having a larger deposit may potentially give you access to more mortgage options.
For example, borrowing 90% of a property's value is generally a different proposition to borrowing 95%.
The lower the loan-to-value, the less the lender is exposed if the property has to be repossessed and sold.
That doesn't mean you need a huge deposit to get a mortgage with bad credit, but having more equity in the property can sometimes help.
Will I have to pay a higher interest rate?
Possibly.
If your credit history means you fall outside the criteria of the mainstream lenders, you may find that the mortgage options available come with higher interest rates.
This is where it's important to look at the overall cost of the mortgage, rather than simply asking whether you can get accepted.
Getting a mortgage is one thing.
Getting a mortgage that is affordable and sensible for your circumstances is another.
Don't make multiple applications without checking first
This is something I'd strongly recommend if you have adverse credit.
It can be tempting to apply to a bank, get declined and then try another lender.
The problem is that multiple applications can result in multiple hard credit searches, which may not help your situation.
Instead, it's worth understanding your credit history and discussing your circumstances with a mortgage adviser before making an application.
The aim is to identify lenders whose criteria are a realistic fit for your circumstances.
What should I do before applying?
If you're considering a mortgage and you've had credit problems in the past, I'd start by getting a clear picture of your current position.
Check your credit reports and make sure the information recorded is accurate.
Then consider:
What credit issues have you had?
When did they happen?
Are any debts still outstanding?
Are you currently up to date with your payments?
How much deposit do you have?
What is your current income?
What regular financial commitments do you have?
The more information you have at the beginning, the easier it is to understand what your options may look like.
So, can I get a mortgage with bad credit?
Potentially, yes.
Having bad credit doesn't automatically rule you out of getting a mortgage.
The key is understanding the circumstances behind the credit problems and finding a lender whose criteria fits your situation.
I've seen clients come to me expecting the answer to be “no” because of something that happened several years ago.
Sometimes the answer isn't no.
Sometimes it's simply a case of finding the right lender and making sure the application is presented correctly.
Worried your credit history could stop you getting a mortgage?
Don't assume that your past automatically prevents you from buying a home.
At Matthew Bugden Mortgages, I can look at your circumstances, including your credit history, income and deposit, and help you understand what mortgage options may be available.
If you've had financial difficulties in the past, getting advice before you make an application can be particularly valuable.
The information provided is for general guidance only and does not constitute mortgage advice. Mortgage availability and affordability are subject to individual circumstances, lender criteria and the information available at the time of application. Past credit problems do not necessarily prevent you from obtaining a mortgage, but they may affect the lenders and products available to you. Your home may be repossessed if you do not keep up repayments on your mortgage.