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How To Get A Mortgage If You Have Poor Credit

How To Get A Mortgage If You Have Poor Credit

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

Getting a “bad credit” mortgage

Getting a “bad credit” mortgage

Mortgage lenders are now obligated to look at long-term “affordability” when calculating whether or not to offer a mortgage.  This is not necessarily a bad thing, but it can create challenges for people in unusual situations, especially for those who have a bad credit record.  Fortunately, these challenges often be overcome.  Here are some tips.

Make your credit record as good as it can be

There may be nothing you can do about your credit record being bad, but there may be some actions you can take to limit the damage.  Make sure you take care of any “quick wins” such as making sure that you are listed on the electoral roll.  Similarly, make sure that you check for any mistakes as you can ask for these to be rectified.

Depending on the situation you may even want to see if you can get any “black marks” removed, for example, if you defaulted on a debt, but can now afford to pay it, then you might want to try reaching out to the company and seeing if they will take your payment and remove the mark.

Make a point of managing your finances impeccably

This is partly an extension of the previous point and partly a reflection of the need to practice good financial management in general.  Basically, you want to be in a position where you can convince lenders that you really have dealt with whatever issues messed up your credit file in the first place.  Acting responsibly for a month or two is unlikely to impress anyone, but acting responsibly for a year or two is more likely to be taken seriously.

In short, even if your credit record is “bad”, if the issues were in the past and you can clearly demonstrate that you’ve now sorted yourself out, then you can really improve your chances of being taken seriously by lenders.

Build as big a deposit as you possibly can

Admittedly this holds true for just about everyone in the UK (and quite possibly in other countries as well) but it has particular relevance for borrowers with bad credit.  Basically the more of the purchase price you can pay upfront, the less the lender is at risk in the event that you default, or, to put it another way, the more chance there is that they’ll recover the full loan principal from the sale of the house, even if it takes place in a buyer’s market.

With this in mind, depending on your situation, you may want to look at properties which have room for some kind of expansion, for example space at the side, an attic or a basement.  That way you could take out the mortgage on the price of the house “as is” and then increase the usable space later when your credit record has improved (if only through time).

If you’re thinking about going down this route, be sure to consider all the implications.  For example, you might want to research the likelihood of you needing planning permission (and if so your chances of getting it) and think about the level of potential disruption building works could involve.

Go through a specialist mortgage broker

Simply put, if you’re a potential borrower with a bad credit record then you’re the proverbial square peg in a round hole.  In other words, you’re exactly the sort of person who’s likely to struggle with algorithms and automated scoring and, by contrast, to get particular benefit from “the human touch”.  A good mortgage broker will take time to listen to you and understand your situation and as well as having a good knowledge of available mortgage products, they may also have professional contacts with lenders to help get your application past computers and in front of actual people.

If you would like to know more or are thinking of applying, please contact us

Your property may be repossessed if you do not keep up repayments on your mortgage.