Compare Bad Credit Mortgages

Can you get a mortgage with bad credit?

Although it can be more difficult than if you had a good credit score, it is possible to get a mortgage if you have bad credit.

Mortgage lenders carry out a credit check when deciding whether to approve your application for a home loan. This is because mortgage companies need to assess whether you can be relied upon to keep up with repayments on the amount you want to borrow, or whether you pose a risk of not paying.

Generally speaking, if you have a good credit score and you meet the lender’s affordability tests, a mortgage offer with competitive mortgage rates could be yours.

However, if you have a poor credit history, lenders have another decision to make. They could turn you down for a mortgage altogether or offer you a mortgage with higher interest rates to account for the increased risk they consider you to pose, based on your credit history. This type of home loan is known as a bad credit mortgage.

Importantly, lenders will have different criteria for applications, and some will consider taking on more credit risk than others. So, even if you’ve had an application rejected outright by one or more banks or building societies, there may still be specialist bad credit mortgage lenders willing to give you a chance.

What is a bad credit mortgage?

A bad credit mortgage is designed to help borrowers who have a poor credit history access a home loan.

Sometimes known as subprime mortgages, poor credit mortgages or adverse credit mortgages, bad credit mortgages work in much the same way as a conventional mortgage. It’s usually possible to find both fixed-rate and variable rate poor credit mortgages, which are available over various terms.

Applying for a bad credit mortgage is broadly similar too, and involves assessing what mortgage you can afford and, of course, a credit check.

However, where you will tend to notice differences is in the bigger deposits bad credit mortgage lenders usually ask you to provide, and the less generous amounts that they are willing to lend. Most bad credit mortgages are for a maximum loan to value (LTV) of 75%, which means you might need a minimum deposit of 25% of the property value, compared to the 5% or 10% typically required for a standard mortgage.

Bad credit mortgage interest rates are usually much higher than what you would be charged on a traditional mortgage as well. All these are ways in which lenders attempt to either limit or mitigate the additional risk they are taking on.

How does bad credit affect your chances of a mortgage?

Having bad credit can make getting a mortgage more difficult. That’s because your credit score reflects how you have handled your finances historically, including whether you’ve stayed up to date with payments on your utility bills and loan obligations.

Missed or late payments can negatively affect your credit score and harm your chances of being approved for a mortgage. Having county court judgments (CCJs) or recently being declared bankrupt can seriously affect your credit score too and ring alarm bells with a prospective mortgage lender.

The same goes for borrowers with little or no credit history at all. Without a good credit history to prove how well you manage paying off debt, lenders may be less likely to approve your mortgage application. In some cases lenders will refuse applications with previous adverse credit history and bankruptcy for a certain time period no matter the credit score at the time of application.

Major debt issues that can affect getting a mortgage

Serious debt problems can affect your chances of getting a mortgage. These include:

• Individual voluntary arrangement (IVA): An IVA is a formal agreement with creditors whereby a freeze is put on what you owe. You are usually given up to six years to repay your debts. Getting a mortgage during this period is very unlikely, although some lenders may consider an application if you’ve settled your debt in full; the IVA is at least three years old; and your credit rating has started to improve.

• County court judgment (CCJ): A CCJ can be issued against you if you fail to pay off specific debts and are not responding to requests to settle what you owe. If you settle within 30 days, the CCJ will not register on your credit history. However, if you don’t, it will stay there for six years. Some lenders may consider a mortgage application if your CCJ is settled and over three years old.

• Bankruptcy: Declaring yourself bankrupt will see your debts wiped and assets used to cover what they can, but bankruptcy should always be an option of last resort. If it is a path you cannot avoid, it is very unlikely that you’ll find a lender that is likely to consider you for a mortgage until at least six years after the discharge.

Most negative marks, whether they are as serious as the above or you simply miss a bill payment, will remain visible on your credit report for six years before being deleted.

» MORE: Learn more about IVAs, CCJs, and bankruptcy

How to get a mortgage with bad credit

Before applying for a bad credit mortgage, it’s important to check whether you have a chance of getting a standard mortgage first. Getting a copy of your credit record and seeking advice from a qualified independent mortgage broker could help you get a better idea of the options available to you.

Consider also whether there are any easy ways you could improve your credit score so that the wider mortgage market might become accessible to you. If this seems possible, you may want to delay applying for a mortgage to give you time to improve your rating.

Finding bad credit mortgage lenders

Assuming a bad credit mortgage is your only option, you will then need to find the lenders that are willing to consider you. Some may only offer mortgage solutions if your bad credit is relatively minor, while others may specialise in mortgages for those with IVAs, CCJs or after bankruptcies. Our bad credit mortgage comparison tool above reveals the lenders that may be able to help you.

Sometimes people will need the assistance of a bad credit mortgage broker to help them find a suitable lender, particularly if their circumstances are less than straightforward.

Work out how much deposit you need

With many bad credit mortgages requiring a 25% deposit, this can prove a difficult hurdle for some to overcome. As an example, the deposit you’ll need on a property worth £100,000 will be £25,000 for a 75% LTV mortgage. If you have a family member who wants to help you with a deposit, many lenders accept gifted deposits.

Calculate how much can you afford

Weighing up your monthly income versus your expenditure is the best way to work out how much you can afford to pay for a mortgage each month. A copy of your latest bank and credit card statements and a calculator is all you need to get started, and if you’re getting a joint mortgage include your partner’s income (and spending) too.

How to find the right mortgage deal using the NerdWallet comparison tool

Our comparison tool above is the easiest way to find the right bad credit mortgage for you.

Choose the reason for your borrowing: whether you are a first-time buyer, moving home, remortgaging or looking for a buy-to-let property. Then answer simple questions about the property value, mortgage amount and term length, and you will see the bad credit mortgages that are available.

An indication of the monthly repayment you would need to make is shown for each product, alongside the initial interest rate, relevant product fee and APRC.

The Annual Percentage Rate of Charge, or APRC, will help you to compare mortgage products as it not only includes the interest rate but also any additional fees and charges.

How to apply for a bad credit mortgage

In the same way as when you apply for a mortgage of any kind, a bad credit mortgage lender will want to see documents such as your driving licence, passport or utility bills as proof of your identity and address. Similarly, you’ll need to supply payslips and bank statements to prove your income.

While requirements can vary between lenders, a bad credit mortgage lender is likely to want to delve much deeper too, so expect questions about your credit history, and when and why your credit problems came about.

Details surrounding payment defaults, CCJs, IVAs and any bankruptcy will all probably have to be shared, and you might need to provide additional evidence to prove the issues are either being dealt with or in the past.

Advantages and disadvantages of a bad credit mortgage

Some of the advantages of a bad credit mortgage include:

• If you’re a first-time buyer, you’ll be getting on the property ladder sooner rather than later.
• Securing a mortgage and making repayments on time could improve your credit score.

Some risks to consider before applying for a bad credit mortgage include:

• You’re choosing from a much smaller pool of mortgage options.
• You’ll likely end up paying higher rates of interest than on a conventional mortgage.
• You’ll usually need a large deposit to secure a bad credit mortgage.

Alternatives to a bad credit mortgage

If the prospect of taking out a bad credit mortgage isn’t for you, it’s unaffordable or you’re getting rejected, the following options may be able to help:

Improve your credit score

It may be difficult if you’ve spotted the home you’ve always dreamt of, but taking the time to try to improve your credit score could open the door to the more mainstream lenders and a wider range of mortgage deals. Making sure you’re on the electoral roll, getting errors removed from your credit report, and setting up direct debits to avoid being late with bills and loan repayments are some of the steps you can take.

If you haven’t yet established a notable credit history, perhaps consider a credit builder card, or you could take out a standard credit card, spend on it carefully, and be sure to pay off all that you owe each month. It may be three months before your credit score reflects your efforts, but it could be time well spent if it means you’ll improve your credit score and widen your choice of mortgage deals. Do not apply for a credit card if you are likely to get turned down by your existing credit profile. Use an eligibility checker service before applying to avoid further damaging your credit score by a declined application.

» MORE: How to improve your credit score

Guarantor mortgages

Another potential alternative is to take out a guarantor mortgage, on which a member of your family is named as a guarantor who will step in to cover your payments if you do not make them. You will almost always need a guarantor if you wish to secure a 100% mortgage.

Importantly, you will still undergo a credit check when applying, and so will your guarantor. This is necessary so that the lender knows they can be relied upon to meet the payments if required.

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