Bad credit mortgage guide

In this guide, we’ll explain how to improve your chances of getting a mortgage if you have bad credit and also how to remortgage with bad credit.

Bear in mind
Your home could be repossessed if you don't keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Any savings will vary depending on personal circumstances.

A bit of context

The 2008 financial crisis led to banks adopting stricter lending criteria. With house prices rising, the gap between average incomes and property values increased. This made it harder for many people to borrow enough to buy a home.

Traditionally, you’d need a 10% deposit to get on the housing ladder, and lenders would lend around four times your annual income.(1)

Now that house prices have risen faster than most people’s salaries, that’s no longer the case in most parts of the UK. And getting a mortgage with poor credit is even more challenging.

What is a bad credit mortgage?

There’s no such thing as a ‘bad credit mortgage’. Lenders simply assess your credit score when you apply for one of their mortgage deals. Therefore, you could still be able to get a mortgage if you have bad credit (or ‘adverse credit’, as it’s sometimes called).

There are, however, specialist lenders that provide mortgages to those with bad credit. The interest rates on their mortgages tend to be higher as they consider borrowers with a poor credit history to be higher risk.

But it’s not all about the interest rate. There are fees and incentives to consider too. Read our True Cost guide to find out why a lower rate doesn’t always mean a more competitive deal.

Can I get a mortgage with bad credit?

Lenders conduct credit checks to assess the likelihood of a borrower being able to meet future mortgage payments.

If your mortgage application shows a poor credit history, some lenders won’t accept you, will ask you to provide a larger deposit, or only lend to you at higher interest rates. The extent your mortgage application is affected by your credit rating depends on the credit issue that shows up on your credit report, the amount involved, and when it happened.

Some issues have more impact than others. A late mobile phone payment or a missed utility bill payment may not be viewed quite as seriously as a missed mortgage payment or going bankrupt, which would stay on your credit report for six years.

How can I get a mortgage with bad credit?

Getting a mortgage with bad credit can be challenging, so it’s worth checking your credit report so that you can address any issues before applying.

Building a strong credit history can improve your chances of securing the most competitive mortgage deal.

You can check your credit report for free using one of the main credit reference agencies, For example, Experian and Equifax.

Bear in mind that they may ask you to sign up for a free 30-day trial to access your report, so remember to cancel it within the promotional time period if you don’t want to be subscribed to their monthly paid plan.

Honesty is the best policy

Talking about personal finances can sometimes feel difficult or uncomfortable, particularly if you’re applying for a mortgage with a partner for the first time. But it's important to be aware and honest about any issues upfront to avoid any surprises later on.

It’s particularly important to be honest with your mortgage broker. This will ensure they approach the most suitable lenders and provide the most suitable advice for your circumstances.

How do I check my credit rating?

The main credit reference agencies let you check your score for free online. It doesn’t take long to find out what your score is, and they’ll also provide a report flagging any issues such as records of missed payments.

If you suspect any details are incorrect or are the result of fraud, you can inform the credit agency and provide them with extra information. They’ll then look into this for you, and could remove the offending detail from your record. This process can take anywhere from days to months, so it’s worth looking at your report sooner than later.

Which lenders will consider people with bad credit?

Specialist lenders like Pepper Home Loans or Precise Mortgages provide mortgages for those with poor credit. Some mortgage brokers also focus on getting mortgages for bad credit applicants.

However, you don't 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 be able to help, depending on what the adverse is related to.

How much can I borrow if I have bad credit?

Lenders conduct affordability assessments, checking income and outgoings to assess your ability to meet your monthly payments, and what impact future interest rate rises might have on your ability to repay.

If you’re accepted for a mortgage with a bad credit rating, lending amounts are determined in the same way as a standard mortgage - by your individual or joint income multiplied by an agreed number which varies between lenders (often up to 4.5), and by taking into consideration any debts or commitments you hold.

Should I use a mortgage broker?

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

As a mortgage applicant, you should consider using a mortgage broker if you’re having difficulty getting a mortgage. They’ll consider a wider range of options than if you went directly to a lender, increasing your chances of getting the right deal for you.

Online mortgage brokers such as Trussle can conveniently manage your entire application online, saving you from lengthy paperwork and having to take time out to visit an office.

Watch out for fees

This area of the market is unfortunately unfairly targeted by some brokers who charge extra fees to help those with bad credit.

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

At Trussle, we don’t 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.

Find the right mortgage deal for you

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Bear in mind
Your home could be repossessed if you don't keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Any savings will vary depending on personal circumstances.

Sources
Accurate as of 8th May 2019

  1. ons.gov.uk/peoplepopulationandcommunity/housing/bulletins/housingaffordabilityinenglandandwales/1997to2016#affordability-gap-widens-over-time
  2. simplyadverse.co.uk/terms-and-conditions