Help To Buy Mortgages with Bad Credit

Can I Get Help to Buy Mortgage With Bad Credit?

The government’s Help To Buy scheme was designed to help people who would otherwise struggle to afford the initial investment on a new home by providing a loan of up to 20% of the property’s value (or up to 40% in London) interest-free for the first five years. With this, and a 5% deposit, you could now apply for a 75% (or 55% in London) loan-to-value mortgage, putting you in a far better position when approaching lenders.

To qualify for the government’s Help To Buy scheme, you can be either a first-time buyer or existing homeowner, the property in question must be a new-build home, you must be resident in the UK and planning to use it as your only residence, and the property purchase price should be under £600,000.

It’s important to note that while a mortgage lender will apply credit checks when assessing your application, these checks do not apply for the government Help To Buy equity loan itself. How, then, does having a bad credit history affect your chances of getting a Help To Buy mortgage? In the following sections, we go over the facts.

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HELP TO BUY MORTGAGES WITH BAD CREDIT

In the past, if you had certain bad credit issues, you may have also had problems trying to access the government’s Help To Buy scheme in order to purchase a new home. However, Recent changes to the Help To Buy scheme have made it more accessible to customers with a less than perfect credit history. People can now be accepted for Help To Buy mortgages if:

  • They have been discharged from a bankruptcy for a year

Once a bankruptcy is discharged, it is viewed that there are no more claims against you from the previous debts, and the year’s grace period allows you to show a new history of responsible borrowing and repayments.

  • They have a current IVA

As this is a voluntary arrangement, and not a legal ruling, your capacity for other borrowing is not restricted – although you will need to establish that the mortgage repayments will be affordable to you on top of your debt repayments through the IVA.

  • They have no mortgage arrears in the past 12 months

A year is the period of time viewed as evidence that you are now on a firmer financial footing and thus able to service the new loan or mortgage, even if you had arrears previous to this.

In these cases, where an adverse credit event was comparatively recent, it’s common for customers to be expected to put down a 10% deposit on the property they are looking to buy, rather than the typical 5%. Aside from the added security for the lender, this will show a commitment to the mortgage and act as proof of an applicant’s ability to set by a decent amount of money from their income to service their home purchase.

CAN I GET A HELP TO BUY EQUITY LOAN IF I HAVE BAD CREDIT?

You might be put off by the official line that the Help To Buy equity loan scheme excludes ‘credit-impared customers’. But behind that technical term lies the fact that if you are no longer ‘credit impared’ (which could mean currently bankrupt, subject to a debt management plan or in another situation where your borrowing is restricted), then you are indeed able to access the government’s scheme to help people get a foot back on the property ladder.

If you have bad credit, there is legally nothing to stop you from getting a Help To Buy equity loan, but you may be subject to extra checks and assessments of your financial situation – your income, outgoings and any other existing commitments – in order to make sure you will be capable of paying back the loan over the course of time, just as with a mortgage.

Through the Help To Buy scheme, if you are able to provide a 5% deposit then the government can provide a loan of up to 20% of the property value (outside London), meaning you can approach a mortgage with perhaps 25% to put down on the property. For instance, if you want to buy a property worth £200,000, you’ll need a deposit of £10,000, and the government could supply £40,000, giving you £50,000 to secure the property. This puts you in a far better position with lenders.

The good news is that this equity loan is interest-free for the first five years, after which time interest will be charged at 1.75%, rising by 1% of that amount plus the inflation rate. The government equity loan must be repaid after 25 years, or earlier if you sell the home. If you sell the home, then you will need to also pay back any proportional share of the increased value or profit made on the sale, i.e. a 20% loan will require repayment plus 20% of the increase in property value.

CAN I GET A HELP TO BUY MORTGAGE AFTER BANKRUPTCY?

Most lenders’ criteria will prevent them extending a mortgage to someone with a bankruptcy on their credit file, but there are specialist lenders who you won’t find on the high street who have made it their business to provide mortgage facilities to people with bad credit – even those with a discharged bankruptcy.

Getting a Help To Buy mortgage after a bankruptcy can appear challenging, but if the discharge occurred three years ago or more, then lenders will take a broader view of your case, especially if you can show that you have kept up on all your financial commitments in the meantime and maintained a healthy credit record. There are some lenders who will be happy to lend after 12 months, and a handful who will even be willing to offer a mortgage the first day after a bankruptcy discharge, if you can pass their affordability assessment – but you will invariably be asked for a larger than usual deposit, and it will come with a high interest rate.

As stated above, the government’s Help To Buy loan scheme is now more easy to access for people with a discharged bankruptcy, although it must have been a year since that took place. The only way to know for sure how smooth a ride you will get when applying for a mortgage after a bankruptcy is to talk to an experienced mortgage adviser, such as one of our team at Just Mortgage Brokers. How your application will be treated will be down to your individual circumstances, the details of the bankruptcy and your activities since it occurred.

I HAVE A DMP, CAN I GET A HELP TO BUY MORTGAGE?

Having a Debt Management Plan (DMP) on your credit record, while less severe than an IVA, will certainly have an impact on your ability to get a mortgage, but how great an impact will depend on your exact circumstances, all the factors around your previous money troubles and your current financial status.

If you have a DMP currently in place, then any lender will need to take a close look at your incomings and outgoings to make sure you can afford the mortgage repayments on top of the amounts you pay as part of the plan. If it has already come to an end, then your activities around borrowing, saving and credit repayments in the meantime to keep an otherwise healthy credit history will be important.

In either case, lenders are likely to look upon your application more favourably if you are able to supply a higher than usual deposit, thereby reducing their risk, and show a level of income that will accommodate the regular repayments. They will also be more positive if the DMP was more historic – say perhaps three or four years ago – and you have had no other instances of bad credit on your file.

If there’s one thing we can be sure of, after all our years in the mortgages business, it’s that there will always be options available. Mainstream mortgage providers might shy away from applicants with any mention of adverse credit, but we deal with a wide variety of lenders all over the UK who understand financial issues such as DMPs, and specialise in providing mortgages for people with bad credit histories. You will likely have been turned away by mainstream lenders, but we have access to specialist mortgage providers and deals that you won’t find on the high street – often on an exclusive basis. Get in touch today to find out more.

HELP TO BUY MORTGAGE RATES IF I HAVE BAD CREDIT

The best Help To Buy mortgage rate available to you if you have a bad credit history will really depend on the nature of your adverse credit issues, the amount of time that has passed since they occurred and the level of deposit you are able to provide. A larger than normal deposit gives the lender added security, although your problem will perhaps be an ability to save the extra money for the deposit if you are already working through other credit issues, unless you are able to source the money from friends, family or employers.

With a bad credit history, you’ll always find the most suitable Help To Buy mortgage rates through a specialist lender who is set up to help people who have been through financial difficulties in the past. As the exact rates available will vary from one lender to the next, and indeed from day to day at times, depending on the market, we are not able to print a ‘rest rates’ list here. The rates available, and the right lender to make your application to, will vary according to your individual circumstances, and something we will only be able to advise on a personal basis.

The interest rates available to you will become more favourable the more time that passes after the bad credit event took place. Being in a current debt repayment plan like a DMP or IVA while applying for a Help To Buy mortgage might cause some difficulty, but if it’s been three years or more since your plan was discharged, then the more competitive products and rates should be back within your reach. Of course, after six years, the bad credit event will fall off your credit file, and the situation will, largely, return to normal.

To find out your exact options, and the most suitable rates available on mortgage products to suit your situation, talk to one of our experienced advisors.

HELP TO BUY MORTGAGE LENDERS IF I HAVE BAD CREDIT

If you have any instances of bad credit on your credit reports then, barring one or two very mild issues from three or more years ago, most mainstream lenders will hesitate to accept your mortgage application, and may simply turn you down flat. Their assessments for potential borrowers are based on quite narrow criteria – often just the score obtained from a check via the three main credit agencies.

To get a mortgage, you’ll need to work with one of the lenders who specialise in mortgages for people with bad credit histories. These lenders take a far broader view of your circumstances, and are willing to take many other factors than your simple credit score into account. They will often look at the adverse credit event in context – why and when it happened – and will also take note of your activities since that time – everything you may have done to put yourself of a firm financial footing and any steps you have taken to repair your credit rating.

When the credit crunch hit the markets around 2009, banks and high street lenders became far more cautious about who they would lend to, excluding most people with bad credit from the mortgage market. Since then, several new lenders have entered the market to satisfy the need for mortgages amongst those suffering from previous adverse credit.

These specialist lenders do not advertise to the general public – you won’t see them on the high street and their products do not show up on any ‘best buy’ lists. They will only accept mortgage applications through a trusted mortgage broker, in order to ensure that the borrower/client is the right fit for their product, and vise-versa.

HELP TO BUY MORTGAGE ADVICE IF I HAVE BAD CREDIT

To access the deals offered by specialist lenders, you will need to work with a specialist mortgage advisor. An experienced expert will understand all the issues around bad credit – why it can happen, what you can do to improve your situation and how you can frame your application for the best chance of success – and, with their deep knowledge of the market, will know exactly which lender to approach to find the right product to suit your needs and circumstances.

With over 12,000 mortgages from over 90 lenders to choose from, including exclusive deals you won’t find on the high street, we are confident that you’ll be able to get the right deal, no matter how difficult it might seem. We’ll take the time to go over your particular circumstances, getting to understand your financial history, how it may have changed, what the issues were, and what you’ve experienced since, and then give you an honest appraisal of the options open to you, what you can expect out of a mortgage, and the steps you’ll need to take next to secure it.

Trying to navigate all the lenders open to you by yourself will take up a huge amount of time and resources – and that will only be covering the lenders you are able to access through public channels, who often don’t have the knowledge or willingness to consider applicants with bad credit. Only by discussing your mortgage aims with an expert will you be able to get a complete picture and the impartial advice you need in order to make the best decisions going forward.

Please feel free to get in touch with our team here at Just Mortgage Brokers for an initial no-obligation consultation at no cost to you. We’ll be happy to see how we can help – let us do the hard work for you!