You can get a mortgage with bad credit in the UK but there is a probability that you may require to pay a higher interest rate. Also, you may end up with a larger deposit.
Some lenders are specializing in providing a mortgage to individuals who have poor credit.
These mortgages are referred to as adverse credit mortgages, bad credit mortgages, or subprime mortgages. Also, you must remember that you only get a mortgage if you can afford the monthly repayments.
If you can’t able to repay the monthly payments then you may lose your home. If you have poor credit and opt for getting a mortgage then this article is for you.
Here, in this article, we are going to cover what is bad credit, how bad credit affects a mortgage, and getting a mortgage with bad credit.
Let’s dive into the deep!
What is bad credit?
If you have a poor credit or bad credit rating, it means that you have missed some repayments in the past, or you have been late with your repayments. These payments can include your utility bills, loan repayments, or any other circumstances where you have missed your repayments.
Another fact that can harm your credit record is applying for credit several times, or perhaps you have been ordered to pay someone money as a result of legal action. Further, never applying for credit can also be the cause of your poor credit rating. In this case, you don’t have any evidence of your repayment status.
Credit history is one of the key factors that lenders use to assess whether or not you are eligible for getting a mortgage. They also evaluate how generous that mortgage will be. However, there is good news for you that there are lenders who offer mortgages for first-time buyers with bad credit.
The process of getting a mortgage having bad credit is similar to a regular mortgage application.
How does bad credit affect a mortgage?
The lenders and the banks decide whether or not you will be offered a mortgage. When they decide they consider several factors into account. You can be rejected if you don’t owe a good credit rating. If there is one or more missed repayments or late payments on your credit reports, this can be a red flag to the lenders or banks.
The impact of the missed or late payments erased from your credit report the older they are. These missed or late payments will be wiped off your credit report after 6 years. Some lenders will show their interest to provide you with a mortgage if you had missed or late payment earlier.
You should check your credit report to check if there are any errors before applying for a mortgage. You need to check your entire report not only the score. You can apply for a correction of your credit report if you see that there is something wrong with your report.
Many credit reference agencies offer you tips to improve your credit report.
Tips for Getting a Mortgage with bad credit:
When you apply for a mortgage the lenders will review your credit history. They evaluate how well you manage your finances by reviewing the credit report. They will also check your monthly income, your expenditure, and your monthly savings. They will evaluate your earning and outgoings.
Thus, they will analyze whether or not you have the ability to make the monthly repayments on time. They will also analyze if things change such as a rise in the interest rate, or your income goes down even then whether you can manage your repayment.
It is possible to get a mortgage with a bad credit score but you need to take care of your credit history sensibly. You can also follow these few strategies to be offered a mortgage with bad credit.
- You need to show the lenders that you are a responsible borrower by making all your regular payments on time. These include utility bills, and credit card payments, on time and in full.
- You must review your spending-you should look for the area where you can reduce expenses, and keep your monthly outgoings consistent. You must aim to leave some money at the end of each month.
- You can review your credit report regularly, and make sure that it is up to date, and that the information in the report is true. If you find anything incorrect in the credit report then you can contact that relevant lender and ask for an amendment. Also, you can contact an expert to resolve this issue.
- If you have a good explanation of past financial difficulties such as illness, or redundancy; then you can consider adding a note for correction to the lenders.
- You should focus on a particular property that you can realistically afford because there are not so many mortgages around at 95-100% loan to value.
- You may need a guarantor, generally a parent or an older relative, to assure the lenders that even if you are unable to make monthly payments the monthly payments will be covered.
Is there a minimum credit score for mortgages in the UK?
No, nowadays, lenders use three different credit reference agencies, and each of the credit reference agencies operates on a different credit system. So, you will get different credit scores from different credit reference agencies.
Various lenders have their criteria and can interpret the same information in different ways. But this can be seen as transparent as mud, so it also means that if one lender says “No”, there is a chance that another lender can say “Yes”.
What should I do if I am rejected for a mortgage?
If your application for a mortgage is being rejected then you must look for the reason for the rejection and you must take some steps to improve the credit score. But, you should not reapplication because repeated rejection can ruin your credit history.
You can also speak to a mortgage broker. They will analyze your finances thoroughly and recommend lenders that can approve your application for a mortgage.
Can I get a mortgage with poor credit in the UK?
Ans: having a bad credit score does not mean that you cannot get a mortgage. Different lenders have their strategies to provide mortgages. So there is a chance that if any lender says you “No”, another lender can say “Yes”.
Also, there is a thinnest line between Fair and Bad credit scores. Some lenders provide mortgages for people having bad credit scores. But you must keep in mind that these can be included in higher interest rates and fees.
How can I increase my chances of getting approval for a mortgage?
Ans: You can follow these few strategies to increase the chance of getting approval for the mortgage. These include-
- Check your credit rating
- Pay off unsecured debts
- You need to make sure that you are on the electoral register
- Meet all bills payment deadlines on time
- You can cancel unassessed credit cards and bank accounts.
If you have bad credit and want to get a mortgage in the UK then reapplying to the wrong lender and getting declined can be more severe. But there is good news for you that bad credit does not mean that you can’t get a mortgage. You must remember that a credit score report is not the only factor that lenders will look at when they decide whether you are eligible for a mortgage or not.
The right mortgage broker can help you to get onto the property ladder regardless of your credit issues. Also, the lenders will evaluate your monthly salary and your outgoings. You can also be asked to submit your previous two to three month’s bank statements so they can deeply evaluate if you can make your monthly payments on the mortgage.
Before stepping ahead to apply for a mortgage you must clear all the debts, cut unnecessary spending, and avoid making any further credit overdrafts. These factors will make the lenders realize that you are very responsible with money. In the long run, the lenders will help you to build up a good credit history too.