Applying for a mortgage and purchasing a new home can be an extremely exciting time for any home buyer. However, when looking for a mortgage, a poor credit score could represent a major obstacle. Many people who we encounter are not aware of what constitutes a poor credit score or how bad their ‘bad credit’ is.
Higher Interest Rates On Bad Credit Mortgages
When purchasing a new home and applying for a mortgage, there are a number of things that can contribute to a bad credit score.
- CCJs – A County Court Judgement in which someone is taking action against you following a missed payment
- Defaults – The failure to meet the legal obligations (or conditions) of a loan, such as a home buyer failing to make a mortgage payment
- IVAs – An Individual Voluntary Arrangement for those attempting to avoid bankruptcy
A number of other factors can also contribute to your credit score. You can find out your credit score from your credit report, but if you have a history of bad credit or any of the above, you will likely pay higher interest rates on the money that you borrow.
Why are Interest Rates Higher?
When a lender chooses to lend to a potential buyer, they do so at their own risk. As such, the credit report that buyers provide acts as a form of proof as to their reliability in paying back the money that has been lent. Someone with bad credit reflects a story of a person who has exhibited poor money management and will lead to doubt over their reliability as a payment risk. As such many lenders will choose not to lend.
Those that do will insist on higher interest rates as a kind of insurance against the possibility of missed payments. The higher interest rates also reflect the difficulty that exists with trying to place bad credit mortgages.
Those looking to return to high street interest rates will need to examine their money management and work towards improving their credit score.
Many high street lenders shun borrowers with a poor credit score or with adverse credit data, but a number of specialist firms are willing to offer mortgages, possibly with higher rates, due to higher risk. Fortunately, we deal with these lenders on a daily basis and have an extremely good relationship with them, which will give you the best opportunity to obtain the mortgage you require.
If you would like to discuss the terms of a higher interest bad credit mortgage, get in contact with Just Mortgage Brokers today. You can call us on 0800 114 3820 or email us at [email protected]. We look forward to hearing from you.