Changes to lender criteria

Banks adopted stricter lending criteria after the 2008 financial crisis. 

You used to need a 10% deposit to get a house and lenders often lent around 4 times your annual income. (1) 

House prices have risen faster than most people’s salaries and this is no longer the case in most parts of the UK.

Getting a mortgage with poor credit is now harder.

What is a bad credit mortgage?

There’s no such thing as a ‘bad credit mortgage’.

Lenders will review your credit score when you apply for one of their mortgage deals. You could still be able to get a mortgage if you have bad credit, also known as ‘adverse credit’. 

There are specialist lenders that offer mortgages to those with bad credit. These often have higher interest rates as lenders often view these as a bigger risk.

There are also fees and incentives to consider.

Find out why a lower rate may not be a better deal in our true cost blog post.

Can I get a mortgage with bad credit?

Lenders do credit checks to see how likely the borrower would be to pay their mortgage payments.

If your mortgage application shows a poor credit history some lenders:

  • will not accept your application

  • will ask you to provide a larger deposit

  • might only lend to you at higher interest rates

The extent your credit rating affects your application depends on:

  • the type of credit issue on your credit report

  • the amount involved

  • when the credit issue happened

Some issues have more impact than others. Lenders may not view a late mobile phone payment or a missed utility bill payment as seriously. But things like a missed mortgage payment or bankruptcy stay on your credit report for 6 years.

Some lenders only accept applicants with bad credit that use one. You may find more lenders if you use a broker.

Specialist lenders are more likely to accept and offer you a more flexible deal. Especially if you’ve faced illness, divorce, or other personal situations.

How can I get a mortgage with bad credit?

Getting a mortgage with bad credit can be hard.

It could help to check your credit report so you can fix any issues before you apply.

If you build a strong credit history, you improve your chance of getting a more competitive deal.

You can check your credit report for free using a credit agency, such as Experian and Equifax.

A credit agency may ask you to sign up for a free 30 day trial to access your report. Remember to cancel it within the time period if you do not want to subscribe to their monthly paid plan.

Be honest about your finances

Talking about your finances can be hard or uncomfortable.

Particularly if you’re applying for a mortgage with a partner for the first time.

It's important to know and be honest about any issues upfront to avoid surprises later on.

It’s particularly important to be honest with your mortgage broker. This is so they can find you the most suitable lender and give you suitable advice for your situation.

How do I check my credit rating?

The main credit reference agencies let you check your score for free online.

It does not take long to find out what your score is. They’ll also give you a report that shows any issues such as records of missed payments.

If you think any details are wrong or are the result of fraud, you can tell the credit agency.

You'll need to give them extra information so they can look into it for you. If confirmed, they could remove the detail from your record.

This process can take from days to months, so it's best to check your report as soon as possible.

How to improve your credit score

There are things you can do to improve your rating if you're finding it hard to get a mortgage due to a poor credit score.

The lender will usually check your credit score when you apply for a loan.

Lots of credit checks over a short period can have a negative impact on your credit score.

Make sure you wait before you apply for credit again, and start to improve your credit score first.

Check your credit score with major credit reference agencies Equifax, Experian, or Callcredit.

Asking for your own credit report does not impact your rating.

You can get a hard copy of your credit report for a small fee, often under £2. You may be able to get one online for free.

As well as your credit score, your credit report should show you what is having an impact on your score. They may offer some tips for improving it.

If you think you’ve spotted a mistake on your credit report, let the rating agency know. They can investigate and change your record if they agree it's incorrect.

It can be hard to pay off debts, but try to pay down your debt as much as possible.

It’s always a good idea to have some savings in case an unexpected cost comes up. Using your savings to pay off debt may be a good move.

You can avoid missing future payments by setting up direct debits.

Being registered to vote at your current address can help your credit score. It’s also used by lenders to confirm your name and address.

You can register to vote online.

If you’re not eligible to vote you can send proof of address documents to the credit rating agencies.

Having lots of open accounts, such as several credit cards, can have a negative impact on your score. This makes it look like you have lots of credit available.

Be careful as closing some accounts means maxing out your remaining credit. This could also have a negative impact.

Review your situation carefully and decide if it makes sense to close some accounts that you do not use.

If you do this, remember that you need to contact the lenders to close the accounts. Do not just cut up your cards.

Lenders look at your credit rating to make sure you have a history of managing debt responsibly. This means they may turn you down if you do not have much of a credit history.

Using small amounts of credit like a planned overdraft or a credit card can help to build your credit rating. It'll also improve your chances of being accepted for bigger loans in the future.

It’s important to manage this debt and make your repayments on time. If you do not, you could end up paying high interest rates and doing more damage to your credit rating.

If you’re struggling to get accepted for a credit card, you could try applying for a special ‘credit builder’ card. You'd still need to pay in full each month as the interest rates for these cards are often very high.

Try to use the same phone numbers and job titles on credit applications. Using different information could cause you to fail fraud checks.

Moving house often or changing banks a lot can also impact your credit score.

Serious financial issues like county court judgment (CJJs) and loan defaults will stay on your report for six years.

If you’re near the end of that period, it might be best to wait before you apply for a mortgage.

If you had a good reason for defaulting on a loan you can ask the credit agency to add a note to your file. For example, if you were seriously ill or lost your job.

Thousands of deals

Which lenders will consider people with bad credit?

Specialist lenders like Pepper Home Loans or Precise Mortgages currently offer mortgages for people with poor credit.

Some mortgage brokers also focus on getting mortgages for bad credit applicants.

You do not always need to go to a specialist lender to get a mortgage if you have bad credit.

Many high street banks and building societies may help, depending on what the bad credit is from.

How much can I borrow if I have bad credit?

Lenders do affordability assessments. These check income and outgoings to assess your ability to meet your monthly payments. As well as what future changes to interest rate rises might have on your ability to repay.

A lender bases the amount they'll lend someone with bad credit on the same things as a standard mortgage.

This is based on your individual or joint income time times multiplied by an agreed number.

This number varies between lenders and is often up to 4.5. They'll also consider any debts or commitments you hold.

Should I use a mortgage broker?

A mortgage broker knows the market and the criteria to meet to get a mortgage with a poor credit score.

As a mortgage applicant, you should think about using a mortgage broker if you’re finding it hard to get a mortgage.

They’ll consider a wider range of options than if you went straight to a lender. This increases your chances of getting the right deal for you.

Online mortgage brokers such as Trussle can manage your entire application online. This saves you from lots of paperwork and having to take time out to visit an office.

Watch out for fees

Some brokers unfairly target and charge extra fees to people with bad credit.

A quick Google search will find some brokers charging fees of up to £1,995, or up to 10% of the loan amount. (2)

At Trussle, we do not believe you should have to pay for advice to own your own home - no matter your credit history. That’s why our service is completely free.

Can Trussle help you if you have bad credit?

We search for mortgages from lots of lenders. This means we can often find mortgages for people who lenders have rejected in the past.

At the moment we can generally help you if in the past 6 years you have not:

  • had any late payments, defaults, or county court judgements (CCJs) on your mortgage

  • had your home repossessed

  • had an Individual Voluntary Agreement (IVA) or Debt Management Plan. Unless it was discharged more than three years ago, and you have a mortgage deposit of at least 20%

  • declared bankruptcy. Unless the bankruptcy was discharged more than three years ago, and you have a mortgage deposit of at least 20%

We can also help people who in the last 3 years have not had any defaults or CCJs on an unsecured loan. Unless they’re less than £500 and have been settled, and you have a mortgage deposit of at least 15%.

If you use Trussle to apply for a mortgage, we'll only check your credit score once we've submitted your application to the lender.

We’ll only submit your application if we think it has a good chance of the lender accepting it. We'll also always ask you before we check your credit score.

Sources

Accurate as of 8th May 2019

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