Poor credit mortgages
If you’ve had credit problems in the past, you may have trouble getting accepted for a mortgage. However, it’s not impossible. Poor credit mortgages can give even high-risk borrowers the opportunity to get on the property ladder.
Since the financial crisis in 2008, mortgage providers have tightened up their lending criteria considerably, which means that getting a mortgage can be harder for people with low credit scores.
A poor credit score can be caused by any number of things, from missing credit card or bill payments, through to CCJs and bankruptcy. Anything that has an adverse effect on your credit score can make you look like a risky prospect for lenders, and so you may run into difficulties when applying for a mortgage.
If you’re planning to apply for a mortgage and think you may struggle due to your credit history, don’t worry too much. There are lenders that will consider mortgages for applicants with a low credit score, as long as your problems have been relatively minor. If you have a recent CCJ or have been declared bankrupt in the last 5 years or so, you’re unlikely to be accepted by any lender.
Applying for a mortgage with bad credit
You’ll probably be asked to jump through a few hoops during the mortgage application process. Your mortgage provider will be looking for proof that you can afford the repayments. You’ll need to provide pay slips and bank statements, along with details of your previous credit problems.
If you have bad credit but still want a decent mortgage deal, you’ll need a larger deposit of at least 20-30% in order to unlock more competitive rates. If you don’t have a big deposit saved, you may want to consider asking family or friends for help. However, you should be aware that your provider will even want a say in this.
Most lenders will be happy to accept a deposit if it’s a gift from a family member. It cannot be a loan, and the person giving you the money will have to sign a form to agree to this.
Another option is for a family member to be named as guarantor. This isn’t something to be taken lightly, as it means your guarantor is ultimately responsible for you making your monthly mortgage payments. If you default, their home may be at risk.
Bankruptcy and CCJs
If your previous credit problems have been more severe, you may need to put your homeowner plans on hold until you have built your credit score back up again. If you’ve been declared bankrupt, you’ll need to wait until your bankruptcy is removed from your credit record, which is usually six years from the date of your bankruptcy.
Good to know
• Check your credit history before you start applying for mortgages. If you find any problems, take action to build your credit history up again. For example, if you’re sure you can meet your monthly payments, you could apply for a credit builder credit card.
• You may also want to think about getting an Agreement in Principle (AIP). This will give you an early indication of whether a lender is prepared to offer you a mortgage.
If you think you may struggle to get a mainstream mortgage, a poor credit mortgage from a specialist provider could be the answer you’re looking for but, as with any financial commitment, it’s important you take specialist advice and fully understand your financial obligations before you enter in to it.