There are basically only three ways to get a mortgage if you have poor credit. The first is to leverage someone else’s credit rating. The second is to put down a bumper deposit. The third is to repair the damage to your credit. You may need to use a combination of these strategies and/or apply to a specialist lender.
Leveraging someone else’s credit rating
Possibly the most obvious example of this is using a guarantor. Another option could be to apply for a mortgage jointly with someone who has better credit than you. Both options require a high degree of trust between both parties.
With all the trust in the world, it’s still advisable to make sure your agreement is properly documented. Putting everything in writing eliminates the potential for conflict about what was and was not agreed.
It can also be helpful if you need to demonstrate that the agreement was fair to everyone. For example, perhaps you agreed that the guarantor would be given a stake in the property if the guarantee was invoked.
See if you can use a government scheme
This is most likely if you are a first-time buyer. The Help-to-Buy Mortgage Guarantee scheme is, however, open to onward movers. This is essentially a variation of leveraging someone else’s credit rating. In this case, however, it’s the government’s. There are qualifying criteria for the scheme but there is no harm in taking a look and seeing if you could be accepted.
Putting down a bumper deposit
The less you need to borrow relative to the value of your home, the less risk there is to the lender. Even if you have an excellent credit record, a large deposit will protect the lender against the risk of your home’s value falling and leaving you in negative equity (if only temporarily).
If you have a poor credit record, then an extra-large deposit may help to reassure lenders. This will protect them not just against changes in the housing market but also against the prospect of you defaulting. Keep in mind, however, that lenders may have rules about gifted deposits. If this could affect you, be sure to do thorough research before you apply.
Repairing the damage to your credit
Time is the great healer and that applies to credit scores too. If you have active black marks on your credit record, then these will fade to nothing over time. Admittedly, it may take several years for them to fade away completely. You can, however, use this time to do everything you can to push the needle in the right direction.
Keep in mind that your finances will be scrutinized as part of any mortgage application, even if you have an outstanding credit record. Being able to show lenders either that you have mended your ways or that you are back on your feet (post-COVID19) will be essential to getting approval.
Remember, lenders are obligated to ensure that you really can afford the mortgage you want. If they fail in this duty, then they can get into trouble with the regulator. The more you can demonstrate solid financial management, the more you can reassure them that you are both capable and responsible.
Applying to a specialist lender
The high street (or its digital equivalent) may be the obvious place to go to look for a mortgage but it’s far from the only one. If you’re in a round peg/square hole situation, you may be far better going to a specialist lender.
Of course, the challenge here is finding a specialist lender. You may find it much easier to look for a mortgage broker and let them guide you through the maze. It’s literally their job to know the mortgage market inside out and, hence, know where you’re most likely to be accepted.
If you need mortgage advice, please don’t hesitate to get in touch.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage