This is something we often get asked by many first time buyers. Their initial thoughts are that it is not possible and they are calling us fully expecting the answer to be no but just giving a try.
But, as a bad credit mortgage broker we can help in some very challenging adverse credit circumstances.
In general there are 3 types of lenders when it comes to buying your first home with bad credit:
Normal Mortgage Lenders
This option is aimed more towards those with very minor and historic bad credit, maybe a mobile phone default or credit card default for say £200 from 4 years ago. It is usually an oversight, it has been corrected, never happened again and a Mortgage lender can see that when doing the credit check. Rates with these lenders in the current market tend to fall between 2-4%.
Bad Credit lenders
These are the lenders who actively target customers who have defaults. The defaults may be more recent, more common and for higher amounts. Their criteria is very much black and white with no room for negotiation. That can work in your favour as it can be a case of, if you fit criteria and pass affordability, you get the Mortgage. There is a higher risk to these lenders and their rates reflect that, so you would be looking at rates of around 3-6% depending on the severity of the bad credit – the bigger issue here tends to be age rather than number or value of the defaults. .
These are the lenders who fall somewhere in between. Where the adverse lenders can accept more defaults, higher values and more recent, manual lenders may accept all of these but they need to see some effort on your part.
If they can see all of the defaults were around the same time and there is an explanation and/or you have satisfied the defaults then we can look to put across a positive explanation around why the defaults are there and with some negotiation, try to get an underwriter on board. The key thing with these lenders is that there needs to be an explanation such as ill health, redundancy, relationship breakdown etc, it can help if they have been satisfied (although that is not a deal breaker) and ideally they need to be from one specific period, for example around the period of your redundancy. If the defaults were spread out over 2 years, it would be very difficult to argue it was because of a redundancy.
Rates for these types of lenders can vary a lot. We could be looking at rates of around 3-6%.
First time buyers with bad credit summary
These options are no different to home movers, those looking to remortgage or first time buyers. Where it does differ for first time buyers however is that unlike people already with a Mortgage, you are not able to evidence a history of making payments to a mortgage and that can go against you.
However, if you have been renting, we can evidence you making rental payments from bank statements, a landlords reference or something similar. If you have not been renting then we may be able to evidence you saving your deposit up instead of paying rent/mortgage. In short, what we will do as Mortgage brokers is to try and find lenders where you fit criteria. If that is not possible, then we will try to understand your circumstances and your history and find a way to “package up” your case in the best possible light for an underwriter.
Being a first time buyer with bad credit will not prevent you from getting a bad credit mortgage, but it may alter your options and we may need to look at a different route to getting you on the property ladder, but it should not be a deal breaker.
The devil with anything like this is in the detail and 2 similar cases on the face of it may get very different outcomes, so please do get in touch where we can discuss your First time buyer mortgage with bad credit options in detail and give you an answer for your specific circumstances.