Everything you wanted to know about bad credit mortgages
In this post we will cover everything you wanted to know about bad credit mortgages, but were afraid to ask!
The first thing people should understand that is that poor credit, in some degree or another affects millions of people in the UK and a chequered credit history is more common than most people believe.
When you take into account the following facts it does put some perspective on the issue of credit and how many of us dont have blemish free credit reports:
- Every day, on average, 40+ people are made bankrupt, 70+ Debt Relief Orders are granted and 190+ Individual Voluntary Arrangements are entered into.
- Over 3000 Consumer County Court Judgements (CCJs) were issued every day in 2018
- Citizens Advice deal with over 2000 new cases per day
- Over 50 mortgage possession claims or possession orders are made every day
- 4.1 million UK people have not paid bills or debt repayments in at least three of the previous six months
- More than half of us have never checked our credit score
- 75% of 25 to 34-year-olds have no idea what their credit score is.
- Nearly half of people under 34 years of age turned down for credit did not check their credit report before applying.
According to recent data some 25% of the UK population say they are struggling to make ends meet with 62% worried about personal debt levels and the UK Financial Conduct Authority have stated that half of the UK population are financially vulnerable and that a staggering 4.1 million people are already in serious financial difficulty having missed debt payments and bills in at least three of the last six months.
It may seem sobering to learn the numbers but for an adverse credit mortgage broker such as ourselves we see poor credit history day in, day out so it is of no shock to us to see people with blemishes on their credit report.
The context of Bad/Poor Credit is Changing
Going back to the Credit Crunch in 2008 it was difficult for people with ‘good credit’ to get a mortgage unless they had very large deposits or considerable equity as part of a homemover loan. First Time buyers found it difficult to the point of near impossibility to get a look in and ‘bad credit’ to a lender back in 2008 could be as trivial as a single late payment in the last 12-24 months.
Fast forward to today and the lending landscape has changed considerably and we would like to think for the better.
Irresponsible lending, like giving 100% self certification mortgages to people whom couldn’t prove any income are thankfully a thing of the past and since the credit crunch lenders have become more adept at identifying and managing risk. This has meant that some lenders are more forgiving when it comes to adverse credit history.
Whilst it will differ from lender to lender the context of what is considered ‘bad credit’ has changed and whereas before any blemishes would see an automatic fail from many lenders, today an underwriter will look at the whole picture and the context of the credit history blemishes.
There are obviously no guarantees in life or lending but 10 years ago, if you lost your job and missed two loan payments you might have found it difficult to get a mortgage at all for a couple of years. Today many of the specialist lenders we deal with will look at the reason behind the missed payments and see it for the temporary (unintentional and unavoidable) blip it more than likely was.
Bad Credit doesn’t mean an automatic “No” for a Mortgage
The next point to take from this article is that because the context and understanding of ‘bad credit’ has changed in recent years, having some adverse on your credit file doesn’t mean an automatic no these days.
Obviously the severity of the adverse on your credit file is crucial but don’t despair.
Whilst the interest rates will be higher for very recent and/or significant adverse credit there can still be options available, depending on how you fit the other lending criteria such as affordability and equity or deposit amounts.
Another point to take away from this post is never assume and give us a call!
If you’re not quite ready to pick up the phone and have a chat with us, below we have listed a few of the more frequent questions and answers to hopefully give you a little more information on mortgages with less then perfect credit.
What is a bad credit mortgage?
Starting off with an easy one, a bad credit mortgage is simply a mortgage for borrowers and applicants with a low credit rating due to some adverse history. You may need to consider an adverse mortgage if you have a low score due to not having much or indeed any history, but we would always try to place you on the high street or a manual underwriting lender before having to look at an Adverse credit lender in those circumstances.
It is important to consider that not all UK lenders offer bad credit mortgages.
The high street banks by and large have very narrow scope for blemishes on your credit history. As such, best practice advice is to engage with a whole of market Mortgage Broker such as ourselves who can research the whole mortgage market, in order to find the right profile of lender and loan product to your needs and circumstances, at the last count we had access to over 70 lenders.
Can I get mortgage with a bad credit history?
Without doubt this is one of the most frequently asked questions we get and as we touched on earlier in this post the lending landscape has changed and this has meant that for the millions of people with adverse history and poor credit, it is not an automatic ‘no’ and there are lenders out there.
Although some mortgage lenders (particularly the High Street banks and larger Building Societies) may turn you away if you have any adverse on your file, some lenders will base their lending process and decision upon the age and severity of your credit problems. The amounts involved and how recent they are will then be taken into context with the lenders other eligibility and affordability requirements and how much equity or deposit is involved.
What bad credit issues will mortgage lenders accept?
As you can appreciate the severity of the credit issues in the context of the other lending criteria is important, not just in the case of getting a ‘yes’ on your mortgage application, but in determining what interest rates are available to you.
Again it is our job as a whole of market broker to find the best available option for you.
Some mortgage lenders (such as mainstream ones and high street lenders) might offer you quite unfavourable rates if you have any type of adverse on your file, even a late payment, whilst other such lenders may turn you away altogether.
Specialist providers on the other hand will on the whole take more of a flexible approach to mortgage applicants with a poor credit score or adverse history and we have placed mortgages for people in all of the following scenarios:
- Defaults, CCJs & IVAs
- Debt management Schemes
- Little or even no credit history
- Low credit scores
- Late payments
- Missed mortgage payments
- Debt management Schemes
- Payday Loans
As already touched on, the severity and age of the bad credit in the context of the other lending criteria such as affordability and equity/deposit are relevant and will very from lender to lender. As such it pays to engage with a whole of market broker who can review your individual circumstances and find the right fit lender for your circumstances.
Which credit issues do lenders class as the most severe?
While getting a mortgage with bad credit is possible and the easier it will be for the less serious adverse issues we are often asked what credit issues lenders view as being the worst?
Whilst missed payments are at the lower end of the ‘severity’ spectrum recent bankruptcies or repossessions are at the more severe end of the credit issues that will be most challenging to overcome.
However, until we know the full story behind any credit issues, even severe ones, it is worth noting that we have still placed mortgages for clients who’ve had both bankruptcies or repossessions in the last couple of years, so it is possible, the devil is in the detail.
How much deposit do I need for mortgage with bad credit?
Customers will often ask us whether their chances of getting an adverse credit mortgage are improved with a larger deposit. The answer (in most cases) is yes.
Whilst the minimum deposit requirement for a residential property purchase in the UK is 5%, if you have adverse history some lenders will only offer you a mortgage if you put down more for the deposit. The amount will vary from lender to lender and is largely determined by the age and severity of the credit issues you have had.
Hopefully we have put bad credit mortgages into context and given some hope to those whom thought they had none as the market really has improved and there are a lot more options available to the millions of people with blemishes on their credit report.
The best thing you can do is to get your credit report and see what issues there are and then give us a call.
- Millions of UK people have adverse, poor credit
- Having poor credit doesn’t mean an automatic ‘no’ for a mortgage
- Dont assume your credit is the ‘worst’. There is still hope.
- Get your credit report. See what the issues are and give us a call.
- Household debt: statistics and impact on economy (21 December 2018) – House of Commons Library
- 2018 Registry Trust Limited Public Statistics – (December 2018) – https://www.registry-trust.org.uk/publications/category/46-statistics
- The Money Charity – https://themoneycharity.org.uk/media/December-2018-Money-Statistics.pdf – https://themoneycharity.org.uk/money-statistics/
Mortgage Success Manchester
Mortgage Success are a Manchester based Mortgage Broker with UK wide, whole of market access to help find the best mortgage available for all of our clients, whatever your location or circumstances.