There are so many different types of mortgage available in the current market, and so many different rates of interest charged on them, that it can be hard to know where to start when you are looking for the best deal.
When people have bad credit, however, they are limited in the options available to them and also adversely impacted when it comes to getting the best interest rate. Here, we look at some of the things to take into account when you are looking for the best bad credit mortgage deal.
What is a bad credit interest rate, and is it specific to bad credit customers?
If people have a history of bad credit, then borrowing is typically more expensive. However, the rate charged for any mortgage will be unique to that applicant, based on their individual circumstances. There isn’t a standard ‘bad credit interest rate’, just the knowledge that, based on the lender’s assessment, people with a history of bad credit are unlikely to get the most preferential rate available.
What impacts the interest rate of a mortgage?
Some things – like the Bank of England base rate, for example – can impact mortgage interest rates. On a case-by-case level, the kinds of things that have an impact include:
- Your credit rating – if you have adverse credit events on your credit report, the interest rate you are charged will likely be higher
- The amount of debt you have, in addition to the mortgage – lenders are often highly averse to people having high levels of debt other than the mortgage; they fear it’s a red flag indicating poor money management
- The loan to value (LTV) ratio of the mortgage – the lower the LTV, the lower the interest rate
- The term of the product – generally, shorter term deals offer lower rates
How do you improve your interest rate?
The best way to improve your rate is to improve your credit rating. Get copies of your reports and check the data is accurate. If anything is incorrect, get it changed. Make sure you’re on the electoral role – that’s a small task that can have a big impact. Get overdue payments up to date.
Next, if you have debt, it may be beneficial to aim to clear or reduce it. Find out whether it’s worth spending part of your deposit savings on clearing your debt. Normally, having a bigger deposit is better, but you might be viewed more favourably if you are debt-free (or have less debt), even if you are putting down a smaller deposit as a result.
Finally, if you can – or have no other option – sit it out. Adverse credit events drop off your credit report after six years, meaning they no longer have an impact – and it gives you a bit longer to save a deposit, so your LTV will be more favourable too.
In all cases, taking independent, impartial advice from a financial adviser is a good idea.
What else should you look out for?
It’s not just the interest rate that has an impact on the cost of your mortgage – there also are things like the arrangement fees, stamp duty and offers or incentives to take into account.
Make sure you understand the true cost of what’s on the table. For example, if you are paying a reduced amount for the first year of your mortgage, what will the knock-on effect of that be over the term of the loan? If there’s cashback involved, what will that cost you elsewhere? Make sure that such incentives and ‘perks’ don’t cost you more in the long run.
An independent financial adviser will be able to make sure you get a good deal, with no nasty surprises included.
How Just Mortgage Brokers can help
Just Mortgage Brokers’ team of independent brokers have a wealth of knowledge when it comes to getting the best mortgage deal possible. We can help with everything, including the application paperwork, which gives you peace of mind that everything is being handled efficiently and working in your favour. Get in touch today for free initial advice.