Understanding Mortgages with Bad Credit

Understanding Mortgages with Bad Credit

Clock  4 minute read

Carl Shave Carl Shave | November 20, 2014


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There are mortgages out there for people with bad credit… if you know where to look. You are unlikely to get a bad credit mortgage from a high street lender such as your bank. It could be the case that you have missed a few credit card payments, or maybe you forgot to pay that phone bill on time. Little mishaps like that can lead to your credit rating decreasing. You could also have more severe issues such as having Count Court Judgements (CCJ) awarded against you, or you may have been made bankrupt in the past. 

What is a bad credit mortgage?

Bad Credit Mortgages have been specifically designed for those with a bad credit rating. Sometimes these are also referred to as adverse mortgages. They are the same as a standard mortgage; however, they tend to have higher interest charges, purely because you are seen as a higher risk to the lender.

What do I need for a bad credit mortgage?

As you will be seen as more of risk with bad credit than someone with a good credit rating, you will have a higher interest rate than a standard mortgage. Unfortunately, bad credit mortgages don’t work in conjunction with the Government schemes such as Help to Buy or Shared ownership. It is important that you have a steady income and will be required to have a deposit of at least 15%. If you receive benefits to support your income, then your income from your benefits will be added to your employment income. We have recently written a blog on benefits and bad credit mortgages, where you can find out more information on the situation.

Can I check if I have bad credit before I apply?

Before you make an application for any type of credit, you should always check your credit report. There are a number of agencies that you can use to check your credit report. However, Noddle will provide you with a free report. It is also worth checking with credit companies if they do a soft footprint report. This means that they will check your credit history without leaving a mark on it. You will be able to see it has happened but no other finance companies will. This is an important step, as having several searches on your record can result in your credit score decreasing. When applying to a mortgage company for a bad credit mortgage, they don’t want to see you have asked everyone out there frantically applying.

What can cause my bad credit report?

There are a number of different things that can cause you to gain a bad credit report:

  • Missing Credit Card, loan payments and even your mobile payments.
  • Having CCJs against you.
  • Or having been declared bankrupt, entered into a debt management plan or an Individual Voluntary Arrangement.

How can I get a mortgage with bad or adverse credit?

Before applying for a mortgage, it is important that you check your credit report, to assess your credit history situation. You should also look at a wide range of mortgage options, as there are many different types of mortgages available, for example, discounted rate, fixed, or variable. You should always bear in mind that just because there is a wide range on offer, having a bad credit history will hamper some of these options being open to you. Researching a wide range of mortgage providers is also advisable. Going to a specialist in bad credit mortgages such as a broker will give you a chance to widen your search in one go. Brokers have access to a lot of mortgage deals and can often help you secure the best deal on the market for your situation.

Do I need to pay any fees up front?

This varies from lender to lender. However, many lenders won’t ask you to pay any upfront costs before they check they can secure you with a mortgage. Once they have found a suitable mortgage you may have to pay a fee. You will then normally have to pay a lender arrangement fee, which can typically be £1,000-£1,500, this is normally added to the mortgage for you. Before going ahead with any mortgage search or agreement, you must check what the upfront costs are. Any providers legally must disclose these to you.

Can I improve my credit rating?

You certainly can! But remember this isn’t going to happen overnight, it requires time and dedication. We have already put together a handy guide on how you can improve your credit rating. There is also no guarantee that you will still receive a mortgage once you have improved your credit rating.


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