For many people across the UK, owning a home is a significant life goal. However, if you have a poor credit history, it can feel like a distant dream. One of the most frequently asked questions by those in such circumstances is: can you get a mortgage with bad credit? The answer isn’t always straightforward, but the reality is that, while more challenging, it is often still possible.
We will explore the subject in depth, looking at what bad credit means, how lenders assess creditworthiness, what you can do to improve your chances, and the specific mortgage options that may be open to you.
What Is Considered Bad Credit?
Before diving into mortgage eligibility, it’s essential to understand what constitutes “bad credit.” Credit scores in the UK are generated by major credit reference agencies such as Experian, Equifax and TransUnion. These agencies compile data about your borrowing habits, repayment history, and financial reliability.
Bad credit can stem from a variety of financial behaviours and events, including:
- Missing or making late payments on loans or credit cards
- Defaults on credit agreements
- County Court Judgments (CCJs)
- Individual Voluntary Arrangements (IVAs)
- Bankruptcy
- Frequent credit applications in a short time span
Lenders use this information to assess the risk involved in lending you money. If your credit file shows any of the above, it may categorise you as a higher-risk applicant.
Can You Get a Mortgage With Bad Credit?
So, can you get a mortgage with bad credit? The short answer is yes – it is possible. However, you may find the process more constrained compared to someone with a clean credit history. Mainstream lenders, like high-street banks, may be more hesitant, but there are lenders out there that specialise in helping those with adverse credit histories.
Each lender has their own criteria and risk appetite, meaning one lender might decline an application that another may accept. This is where working with a mortgage advisor can help by identifying suitable options based on your specific circumstances.
How Do Lenders Assess Mortgage Applications?
When you apply for a mortgage, lenders consider a variety of factors, not just your credit score. These can include:
- Income and employment status: Are you employed, self-employed, or a contractor?
- Deposit amount: A larger deposit may reduce perceived risk to lenders.
- Debt-to-income ratio: How much of your income goes toward debt repayment?
- Credit history details: Not just your score, but the type, frequency, and severity of any past issues.
- Length of time since credit issues: The older the issue, the less impact it may have.
What Types of Bad Credit Mortgages Are Available?
Certain mortgage products are designed specifically to accommodate applicants with poor credit. These are sometimes known as bad credit or adverse credit mortgages. While they operate similarly to standard mortgages, they may come with higher interest rates or require a larger deposit to offset the lender’s risk.
Examples of scenarios where a bad credit mortgage may be relevant include:
- Recent or historical credit defaults
- CCJs within the last six years
- Discharged bankruptcies
- IVAs that have been completed
These types of mortgages are generally offered by specialist lenders who assess each application on a more case-by-case basis than mainstream providers.
How Much Deposit Do You Need With Bad Credit?
If you have bad credit, you may be required to put down a larger deposit. While someone with good credit may be eligible for mortgages with as little as 5% deposit, those with adverse credit might need to provide 15% or more. The exact percentage can vary depending on the severity of your credit history and the lender’s criteria.
How to Improve Your Chances of Getting Approved
Improving your likelihood of securing a mortgage with bad credit involves a combination of financial preparation and selecting the right lender. Here are some practical steps you can consider:
1. Check Your Credit Report
Before applying for a mortgage, review your credit reports from Experian, Equifax and TransUnion to identify any errors or outdated information. Disputing inaccuracies could potentially improve your credit score quickly.
2. Reduce Outstanding Debt
If possible, try to pay down existing debts. Lenders are more likely to consider your application favourably if your debt-to-income ratio is lower, demonstrating financial stability.
3. Avoid New Credit Applications
Each credit application you make leaves a footprint on your credit report. Too many applications in a short time can negatively impact your score and raise concerns for prospective lenders.
4. Register on the Electoral Roll
This simple step can help lenders verify your identity and address, which can positively influence your application.
5. Use a Specialist Broker
Some mortgage lenders are more accommodating toward applicants with bad credit, but they typically don’t advertise directly to the public. A mortgage broker can help you navigate the market and identify lenders whose criteria align with your profile.
What If You’ve Been Declined Before?
Being turned down by a lender doesn’t mean all hope is lost. Each rejection may leave a mark on your credit file, so it’s important to approach future applications cautiously and with better preparation. Seeking professional mortgage advice can help you avoid repeated declines by matching you with lenders more likely to accept your application.
Are There Impacts from Past Financial Issues?
Certain credit issues are viewed more seriously than others. Below is a general overview of how different financial events may impact your application:
- Missed payments: A few missed payments may not be deal breakers, particularly if they occurred more than 12 months ago.
- Defaults: Lenders may accept applications with defaults depending on when they occurred and the amounts involved.
- CCJs: These may be accepted if they are small, settled, and over two years old.
- IVAs and Bankruptcies: Generally, these must be discharged for a certain period (typically over 6 years) before you can be considered.
Self-Employed Applicants With Bad Credit
If you are self-employed and have bad credit, you may face additional scrutiny. Lenders may request additional proof of income such as:
- SA302 forms from HMRC
- Tax year overviews
- Accounts prepared by a certified accountant
Having two or more years of accounts and a stable income pattern can significantly improve your chances, even with historical credit issues.
Bad Credit for First-Time Buyers
First-time buyers with bad credit may find it especially difficult, as they can’t rely on equity from a previous property. However, specialist lenders may still consider your application if you have a reasonable deposit and meet other criteria. In some cases, government schemes such as Shared Ownership may be open to applicants with less than perfect credit, though availability varies by lender and location.
Joint Applications When One Person Has Bad Credit
If you’re applying for a mortgage with a partner or co-borrower, lenders will usually assess both applicants. If one of you has a strong credit history, it may help balance out the profile, but there are scenarios where the application can still be declined based on the weaker credit record.
In some cases, applying in a single person’s name may be the better route, depending on income levels and affordability calculations.
How Long Will Bad Credit Affect You?
Most negative marks on your credit report remain for six years. Over time, their impact can lessen, especially if more recent behaviour shows improved financial management. The more time that has passed since the last adverse event, the better your chances of getting approved for a mortgage with improved terms.
Will You Pay Higher Rates With Bad Credit?
You may face higher interest rates compared to those with a clean credit history, particularly if the lender perceives you to be a higher-risk borrower. These higher rates help the lender offset the additional risk. However, once you’ve built stronger credit and demonstrated consistent repayment history, you may be eligible to remortgage in the future at more competitive rates.
How Long Do You Need to Wait After Bankruptcy?
Most lenders will require that you wait a minimum of six years after being discharged from bankruptcy before considering a mortgage application. Some specialist lenders may consider applications sooner, but they may request a higher deposit or additional evidence of financial recovery.
Mortgage Guarantor Options
In some situations, a guarantor mortgage may be worth exploring. This is where a relative or friend agrees to cover repayments if you’re unable to do so. While less common than in the past, some lenders still offer this type of structure, especially for applicants with bad credit or lower income levels.
Summary
So, can you get a mortgage with bad credit? In many instances, you can. The key is understanding your credit profile, knowing what lenders are looking for, and taking steps to improve your financial standing. It’s also essential to explore mortgage products from specialist lenders who consider a broader range of circumstances.
While having adverse credit does present challenges, with the right preparation and guidance, obtaining a mortgage is often still achievable. It’s important to approach the process knowledgeably, patiently, and with an understanding of the criteria that lenders use to make their decisions.