Can You Get a Mortgage with Bad Credit? Improve Your Chances

Struggling with bad credit and wondering if owning your dream home is still within reach? It’s a question that crosses the minds of many, and the good news is, having a less-than-perfect credit score doesn’t mean the door to a mortgage is completely closed. While it might feel like an uphill battle, there are ways to navigate the process and secure a deal that works for you.

Let’s face it, the world of mortgages can feel overwhelming, especially when terms like "bad credit mortgage" or "adverse credit mortgage" get thrown around. But here’s the thing – there’s no such thing as a special "bad credit mortgage". It’s just a regular mortgage with a few extra hurdles, like higher interest rates or needing a bigger deposit.

So, how do you find the right path forward? Let’s break it down and explore how you can still get a mortgage, even with bad credit.

What Is Bad Credit And How Does It Affect Mortgages?

Bad credit refers to a poor credit history, often resulting from missed payments, defaults, or financial issues like bankruptcy. It signals to lenders that you might be at a higher risk of not repaying debts. For mortgages, lenders typically evaluate your credit history to assess whether you're a reliable borrower. Severe credit issues, such as an Individual Voluntary Arrangement (IVA) or multiple defaults, can make you seem riskier, and this may limit your lender options.

How Lenders Assess Bad Credit

Lenders examine the type of credit issues you've had, when these occurred, and whether you've since resolved them. For instance, a single late payment from two years ago might seem insignificant compared to a recent bankruptcy. They also assess whether you've completed repayments for existing agreements, such as debt management plans, as evidence of financial responsibility.

How Bad Credit Influences Mortgage Rates and Terms

A lower credit score often results in higher interest rates and stricter terms. Borrowers with bad credit might be asked to pay a larger deposit, usually around 20–25% of the property value, rather than the typical 5–10%. This is because lenders see it as reducing their risk. Some may also limit the amount you can borrow, which might affect the type of property you can afford.

Can You Get A Mortgage With Bad Credit?

Yes, getting a mortgage with bad credit is possible. Although a poor credit history may result in higher interest rates or a larger deposit, it won't stop you from exploring mortgage options. Lenders often assess your credit profile to understand the severity and timing of past credit issues.

Common Misconceptions About Bad Credit Mortgages

1. Bad Credit Means No Mortgage Options: Many believe poor credit completely disqualifies them. However, lenders specialise in working with people in your position—adverse credit lenders focus on offering solutions tailored to your circumstances.

2. All Offers Are Overpriced: While interest rates may be higher than those for borrowers with excellent credit, deals aren't automatically unaffordable. Getting competitive offers depends on factors such as your deposit size, income, and when your credit issues occurred.

3. No Point Applying After Bankruptcy: Bankruptcy or Individual Voluntary Arrangements (IVAs) don't mean your chances are gone forever. Given some time after these issues are resolved (usually 12 to 36 months), you may still qualify.

Mistakes To Avoid And How To Fix Them

1. Applying Without Checking Your Credit History: Ensure your credit report is accurate before applying. Incorrect records like outdated defaults can harm your chances. Correct errors by contacting the credit bureau and providing accurate documentation.

2. Approaching The Wrong Lenders: Avoid applying to mainstream lenders who may automatically reject you. Seek those who specialise in bad credit cases, as multiple application rejections could further lower your score.

3. Ignoring The Deposit Factor: With bad credit, offering a larger deposit, like 15% to 30% of the property's value, can improve your options. Saving more upfront is worth it to access better deals.

When Bad Credit Mortgages Work Best

Bad credit mortgages suit situations where credit issues are old or minor, e.g., missed payments from years ago or one-time payday loans. They're also useful when your finances are stable but past circumstances impacted your credit score. For recent or severe issues like bankruptcies, waiting a little longer and improving your credit may yield better results.

How To Improve Your Chances Of Getting A Mortgage With Bad Credit

Securing a mortgage with bad credit is achievable, especially with expert support like Mortgage Connector. By connecting you to trusted mortgage brokers who specialize in adverse credit cases, you can streamline the process and find tailored solutions to fit your needs. Here's how you can improve your chances:

Checking And Improving Your Credit Score

Start with your credit report to understand your financial standing. Download it from a trusted credit reference agency, and review every detail for accuracy. Errors, outdated information, or fraudulent activity (like a Cifas marker) can drag your score down unnecessarily. Dispute issues promptly to have them corrected.

Timely payments on bills and debts are crucial. Prioritise clearing any overdue balances and reducing high-interest debts gradually. Stay within your credit limits—ideally, use no more than 25% of the available credit to show responsible usage. Avoid opening new credit accounts in the six months before your application, as multiple hard checks on your report can raise concerns for lenders.

Another simple way to boost your score is by registering to vote. Being on the electoral roll helps lenders verify your identity and address, which builds trust in your application.

Saving For A Larger Deposit

A larger deposit reduces the lender’s risk. Even if your credit score isn’t ideal, a significant deposit—20% or higher—signals you’re serious about property ownership and are financially prepared.

Begin by creating a savings plan. Review your expenses and identify areas where you can cut back, allocating the savings towards your deposit fund instead. Set up a dedicated savings account to track your progress and avoid dipping into these funds for non-essential purchases.

If saving alone proves difficult, you could enlist family help. A financial gift or loan for your deposit—if given by a relative and declared correctly—can strengthen your application without creating complications. Keep in mind, though, that the larger your deposit, the better terms you might secure, so every additional pound saved counts.

Working With A Mortgage Broker

Navigating the complexities of bad credit mortgages is much easier with the right expertise. Mortgage Connector matches you with brokers experienced in helping borrowers with poor credit.

These brokers understand specific lender criteria, reducing the risk of rejections that could harm your credit further. They’ll help you find the best terms and walk you through every step, from application to approval.

What To Do If You’re Rejected For A Mortgage

Facing a mortgage rejection may feel disheartening, but it’s not the end of the road. There are practical steps you can take to assess, address, and improve your chances next time around. Handling a rejection effectively can help prevent further financial setbacks and uncover better ways to navigate future applications.

Understand Why Your Application Was Declined

Mortgages are declined for various reasons, such as a poor credit history, insufficient income, or an ineligible property. When a lender turns down your application, ask for detailed feedback. Knowing the specific reason allows you to focus on areas needing improvement. For example, if bad credit was flagged, review your past missed payments, defaults, or high credit utilisation.

Avoid Applying to Multiple Lenders Too Quickly

Each mortgage application leaves a footprint on your credit report. Multiple rejections over a short period can lower your credit score and make future lenders cautious. Instead of applying again immediately, address the issues identified in the rejection. To avoid this pitfall, research the lender’s eligibility criteria beforehand or consult a broker who can match you with suitable options.

Check and Improve Your Credit Report

Access your credit report through a trusted credit reference agency. Look for any inaccuracies, incorrect defaults, or old debts that should’ve been cleared. Rectifying errors can boost your score and remove potential red flags for lenders.

Adopt good credit hygiene practices to strengthen your profile. Examples include:

• Paying bills by the due date.

• Reducing outstanding debts.

• Registering on the electoral roll to confirm your address.

• Maintaining low credit card balances compared to their limits.

These steps demonstrate financial responsibility, improving your appeal to lenders.

Save for a Bigger Deposit

A larger deposit often reduces borrowing risk for lenders and can lead to approval despite past credit issues. Focus on increasing savings if rejection was due to affordability concerns or if the requested loan-to-value (LTV) ratio was too high. For instance, raising your deposit from 5% to 20% of the property value significantly widens your mortgage options.

Seek Specialist Advice from a Mortgage Broker

Specialist mortgage brokers understand the complexities of bad credit cases. They can identify lenders willing to work with your circumstances and guide you through the application process. Some lenders only accept applications through brokers, making their expertise invaluable for unique situations.

Conclusion

Securing a mortgage with bad credit might seem daunting, but it’s far from impossible. With the right preparation, a clear understanding of your financial position, and the help of specialist lenders or brokers, you can still achieve your goal of homeownership.

Focus on improving your credit profile, saving for a larger deposit, and exploring alternative options like shared ownership or guarantor mortgages. By taking a proactive approach and avoiding common pitfalls, you’ll be better equipped to navigate the challenges and find a solution that works for you.

Homeownership is within reach, even with bad credit, as long as you plan carefully and remain persistent.

Frequently Asked Questions

Can I get a mortgage with bad credit?

Yes, you can still get a mortgage with bad credit. Many lenders specialise in bad credit cases, though you might face higher interest rates, stricter terms, and need a larger deposit. Improving your credit score prior to applying can help secure better options.

What is considered bad credit for a mortgage?

Bad credit usually refers to a history of missed payments, defaults, bankruptcy, or other financial difficulties. Lenders review your credit report and score to assess risk, often requiring higher deposits or offering higher interest rates to applicants with bad credit.

Do bad credit mortgages have higher interest rates?

Yes, bad credit mortgages typically come with higher interest rates due to the perceived higher risk for lenders. However, rates can vary depending on factors like the size of your deposit and your current financial stability.

Are there lenders specialising in bad credit mortgages?

Yes, some lenders specialise in bad credit cases and aim to offer tailored solutions. These lenders often look beyond past credit issues, focusing instead on your current financial health and deposit size.

What is the minimum deposit required for a bad credit mortgage?

The minimum deposit for a bad credit mortgage is typically 15% to 20%, though it varies by lender and the severity of your credit issues. A larger deposit can improve your options and help secure more favourable rates.

Can I rebuild my credit with a bad credit mortgage?

Yes, a bad credit mortgage can help rebuild your credit if you consistently make timely payments. Over time, this demonstrates financial responsibility and can improve your creditworthiness for future borrowing.

Are zero-deposit mortgages an option with bad credit?

Zero-deposit mortgages are rare for those with bad credit. However, guarantor mortgages or government schemes like Help to Buy could provide alternatives. These options may still require some financial preparation and meeting specific criteria.