Five Common Questions about Bad Credit Mortgages

Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

If concerns about bad credit are hindering your mortgage prospects, rest assured that Your Mortgage Experts have successfully assisted numerous individuals, including those with a history of bankruptcy, in finding suitable lenders and securing approval.

While possessing bad credit is suboptimal, as lenders typically favour borrowers with a track record of punctual repayments, it’s important to note that avenues for improvement exist. If your financial history includes past blips and missed payments, addressing these five common questions can enhance your overall affordability for a mortgage

1.  What is a mortgage for people with bad credit?

A bad credit mortgage is the solution for those with a thin or poor credit history. It’s similar to a standard mortgage, but with rates that are based on the borrower’s personal circumstances and risk profile, and with a more manual and human approach underwriting, as opposed as “computer assessed” underwriting, which is what is typically applied by mainstream lenders for more standard borrowers. Essentially, a bad credit mortgage gives people who may have been refused elsewhere the chance to own their home or a chance to remortgage successfully to a new product deals, rather than being rejected.  self employed contractors

2.  What Causes a Low Credit Score? 

There are several reasons why some people may not qualify for a standard mortgage. But when it comes to low credit score, the most common reasons are:

  • Late or missed payments on things like credit cards, personal loans, utility bills
  • Late or missed payments on your mortgage
  • County Court Judgements (CCJs)
  • Debt management plans
  • Bankruptcy or Individual Voluntary Agreement (IVA)
  • No credit history, for example people that never had a credit commitment or people that just moved to the UK

Depending on the reason why your credit score is low, you may or may not be accepted for a mortgage from a mainstream lender; and you may need to consider specialist

lenders that have specific products and a dedicated approach to underwriting to better cater for these type of situations.

3.  How can you improve your credit score? 

There is no one simple answer to this question, as everyone circumstances and situation is different. Thus it is always a good idea to speak with an experienced remortgage broker who can assess your situation and help you plan accordingly. However, some of the things that can help repair a bad credit score can be the following:

Reduce or pay off your current debts: You may be able to do this by either making one- off payments or by making more than the minimum payment each month, which will show future lenders that you’re responsible with the money.

Borrow More Money If you have a poor credit rating, it may seem ironic to borrow more money, but taking out a prepaid card to repair your credit rating is one option. With low monthly fees, repaying what you owe and managing your finances sensibly can again demonstrate that you are financially responsible.

Build up your credit history: If you’ve never had a credit card, it may be a good idea to get one to help build your financial history. You can make a few purchases each month and pay off the balance in full at the end of the month to show responsibility with money management. And this will overtime help improve your credit score.

4. Can I get a mortgage with bad credit?

Is it possible to secure a mortgage with a less-than-ideal credit history? When applying for a mortgage, financial institutions scrutinize your credit history, evaluating your ability to manage finances effectively. They also assess your income, monthly expenditures, and savings to ensure you can comfortably meet monthly repayments, even in the face of potential changes like interest rate fluctuations or income reductions.

While obtaining a mortgage with poor credit is feasible, presenting yourself in the best possible light is essential. Demonstrating financial responsibility by consistently meeting regular payments, such as utility bills and credit card obligations, is crucial. Additionally, budget sensibly by reviewing and minimizing costs, striving for consistent monthly outflows, and maintaining a surplus at month-end.

Regularly assess your credit report for accuracy and completeness. If discrepancies are found, contact the relevant lender for corrections or enlist the assistance of Experian to facilitate the process. If past financial challenges resulted from circumstances like redundancy or health issues, consider adding a note of explanation to your report.

When aspiring to homeownership, set realistic sights on a property within your financial means, especially considering the limited availability of mortgages at 95-100% loan-to-value. In certain cases, having a guarantor—typically a parent or older relative—can provide lenders with reassurance regarding monthly payments.

5. How does a mortgage for individuals with bad credit work?

If your credit history is less than stellar and you secure approval for a mortgage, you’ll be obligated to make monthly repayments at an agreed-upon amount, subject to a fixed or variable interest rate, depending on your chosen mortgage agreement.

A fixed rate remains constant for a predetermined period, ensuring consistent monthly repayment amounts. On the other hand, a variable rate is susceptible to changes based on fluctuations in the Bank of England’s base rate. In the event of a rate increase, your monthly repayments would rise, and conversely, they would decrease if the rate drops.

Maintaining punctual monthly mortgage repayments is crucial. Adhering to your budget ensures the availability of funds earmarked for mortgage payments. Timely payments are imperative, as missing or delaying a payment could jeopardize your homeownership.

A deposit is a prerequisite for a bad credit mortgage. While some lenders may demand a larger deposit, typically around 20-25% of the property value, as opposed to the conventional 5-10%, this requirement varies. The deposit amount is influenced by various factors, and engaging a bad credit mortgage broker can assist in determining the deposit needed for different lenders, facilitating a comparison to identify the most favourable deal for you.

Bad Credit Mortgages from Your Mortgage Experts

If you have a limited credit history due to never having taken out a loan or owned a credit card, don’t worry. Your Mortgage Experts can help and guide you so that you can be considered for a mortgage. Missing payments might have happened to anyone, but it does not make you ineligible for a mortgage. Each case is unique and will be evaluated objectively to determine the best course of action.

Working with a broker like Your Mortgage Experts has several advantages. We have access to the entire market and can search for the best bad credit mortgage deals from either specialist or mainstream mortgage lenders. We are not limited to one lender or any group of specialist lenders.

As a result, we can find the best mortgage available based on your credit history and circumstances. Your Mortgage Experts has spent years developing a reliable network of lenders’ contacts across London and the UK. Therefore, we know where to go to find solutions to complex mortgage problems.

We are available for a no-obligation mortgage review. Talk to one of our advisors about Bad Credit Mortgages on 02081541111, or Get Started Online with our easy online form, and begin taking steps today.

Think carefully before adding further debt to your mortgage.

Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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