Can I get a mortgage with bad credit?
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
23rd November 2020
4 minute read
- Yes, but only from specialist lenders
- Bad credit mortgages might have a higher interest rate
- Alternatively, you should improve your credit score
Getting a mortgage is usually the largest amount of money you will borrow in your lifetime, and is the key to purchasing a new property or moving house. Unfortunately, if you have a bad credit score from previous borrowing, you will have to seek out a bad credit mortgage instead.
To find out more about this or to improve your poor credit score for the future, we’ve put together some information below that you might find useful in your situation.
What is bad credit?
Bad credit occurs when you have borrowed money and been unable to pay it back, meaning that your credit score will be reduced accordingly, to indicate you’re less creditworthy in the eyes of lenders and providers.
You can find out what your credit score is by getting a credit report. This will show you how likely you are to be accepted for credit cards, loans and mortgages in the future, so is worth checking before you submit any applications.
The following situations may have a negative effect on your credit score:
- Missing a payment on a personal loan
- Making a late payment on a personal loan
- Being unable to pay the minimum monthly amount on a credit card
- Spending over your credit limit on your credit card
- Spending up to your credit limit on multiple credit cards
- Missing a direct debit payment due to lack of funds in your current account
- Spending over your agreed overdraft limit
These are just a few of the instances where your credit score could be reduced, as they generally display that you are struggling to manage your money.
The result of multiple missed payments or a refusal to repay the money you owe can lead to more serious penalties, such as a County Court Judgement (CCJ), which can stop you applying for credit in the future.
Why is it harder to get a mortgage with bad credit?
Major lenders will usually require you to have a good credit score to be accepted, meaning that having a bad credit score will almost certainly lead to a rejection.
Thankfully, there are many lenders to choose from, with some specialising in bad credit mortgages that might suit your circumstances a bit more.
It is harder to get a mortgage in this situation as you will have less lenders to choose from, but that doesn’t mean you still can’t be accepted. It just means you will need to improve your credit score or alternatively, find a mortgage lender who is happy to accept your bad credit score.
What mortgages can I get with bad credit?
If you have a bad credit score then you will be less likely to be accepted by major mortgage lenders, so you will have to search for lenders that are happy to provide mortgages to those customers with bad credit.
With a bit of research, you should be able to find bad credit mortgages and the lenders who are happy to accept you for a mortgage in those circumstances. Like a bad credit loan, you may find that the interest rate will be higher than a standard mortgage though, so you may end up having to pay back more interest in the long run.
How to apply for a mortgage with bad credit
Applying for a bad credit mortgage is exactly the same as any other mortgage, as long as you’re happy that you’ve found a lender that accepts a bad credit score in the first place. The following basic steps should be followed:
- Find the property you wish to purchase – you may already know which property you have in mind but you need to be sure as the value of the property will be required when making an application
- Make sure you have enough deposit saved – depending on the value of the property, you will usually need to save up to 10% as a deposit
- Check your credit report – if you haven’t done so already, check your credit report to see what your credit score is. Having a knowledge of this is important as it can indicate how likely you are to be accepted
- Start comparing mortgage deals – use our moneymatcher tool to find one that is right for you. If you’re a first-time buyer then you may want to get more information on what type of mortgage is right for you, by reading our article here
- Research the mortgage lender – if you think you’ve found a good deal your next step is to ensure the lender will accept a bad credit score
- Apply for the bad credit mortgage – once you know that the mortgage lender is likely to accept your bad credit score and you’ve completed the other steps on the list, you can go ahead and apply
How to improve my chances of getting a better mortgage?
The alternative to applying for a bad credit mortgage is to make improvements to your credit score so that you’re eligible to apply for a standard mortgage instead. This usually takes longer as increasing your score is gradual, but will mean you will get a better interest rate overall.
The following actions should make a positive impact on your credit score:
- Get a credit builder card
- Manage your debts
- Make repayments on time
- Register to vote
- Disassociate yourself from people or addresses
To find out more about improving your credit score, read our article on how to take steps to improve your credit score here.
Start comparing bad credit mortgages
If you feel that the information above has come in handy, you might want to start comparing mortgage deals with moneymatcher now that you know what to look for. Just remember:
- Do your research and never apply without checking your credit score first
- The best option is always improving your credit score and apply for a standard mortgage with a better interest rate, even though this will take longer