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How does bad credit affect a mortgage?

If you are looking for a mortgage to buy a home or refinance an existing loan then you may be wondering how your bad credit will affect a mortgage. The truth is, bad credit will affect the mortgage but it does not mean it is not a possibility. You will need to use a bad credit broker who will put your application forward to a specialist lender who may offer you slightly higher rates than if you had a clean credit report. 

Lenders will have their own criteria for what they deem to be bad credit which could be anything from a missed payment to bankruptcy. Minor credit issues like one missed/late phone bill payment will not stand in your way of getting a mortgage but if you have more adverse-credit which is very recent such as a bankruptcy or repossession your choice of lenders will be smaller. 

Credit issues that can impact your mortgage application are:

  • Late/missed payments 
  • Repossession
  • Bankruptcy
  • County Court Judgement (CCJ)
  • Individual Voluntary Arrangement (IVA)
  • Mortgage arrears
  • Debt Management Plan (DMP)

At MoneyNest we have specialists who work with people with a history of all of the above. Our mortgage experts match you with lenders who may be willing to offer flexibility to your credit history. These lenders will pay attention to when the issues occurred as the more time that has passed the better mortgage deal you could get. But we know that you want to get on to the property ladder or remortgage as soon as possible so we will help you find a lender. Follow the links to get in contact and our superheroes will be in touch. 

How do I know if I have bad credit?

You may have been rejected already from a mainstream lender or struggled to take out other forms of credit such as mobile phone contracts or credit cards. Do not worry if this is the case as mainstream lenders usually do not have the flexibility to offer mortgages to people with bad credit due to the risk it creates. Specialist bad credit lenders will be more lenient and look into your credit report closely. Therefore, you need to get hold of your credit report and review it thoroughly to see where you stand. 

We recommend you download your report from TransUnion, Experian and Equifax as they are the three main credit reference agencies used by UK lenders. Each agency will produce a score for you that lenders use as an indication to your creditworthiness. Bad credit mortgage brokers are more interested in when your bad credit occurred, how severe it is and how large the debt is than the actual rating you are given so do not lose hope if your credit is branded as ‘bad’. It is also important to check your report for any inaccuracies as fixing them could improve your credit and therefore your chances of getting a mortgage.

Adverse credit events are removed from your credit file after 6-7 years depending on what type of issue it is. Older credit issues may mean you are eligible for more mortgages with a higher loan to value and even competitive rates if you meet the lender’s other criteria and have maintained an excellent credit report since. 

The tables below provide an indication of how bad credit could affect mortgage approval.

Secured lending (lending is secured against assets or property)

Credit issueApproved after 0-12 months?Approved after 1-2 years?Approved after 2-3 years?Approved after 3-4 years?Approved after 4+ years?
CCJSPossibleMaybe (with a good LTV)Yes (any number)Yes (any number)Yes (any number)
DefaultsPossibleMaybe (with a good LTV)Yes (any number)Yes (any number)Yes (any number)
Mortgage arrearsYes (max 3 late payments)Yes (any number)Yes (any number)Yes (any number)Yes (any number)
Repossessions UnlikelyYes (25% deposit)Yes (25% deposit)YesYes

Unsecured lending (lending is not secured against assets or property)

0-12 months1-2 years2-3 years3-4 years4+ years
CCJsYes (any number)Yes (any number)Yes (any number)Yes (any number)Yes (any number)
DefaultsYes (any number)Yes (any number)Yes (any number)Yes (any number)Yes (any number)
Debt management Yes (if credit report is unaffected)Yes (if credit report is unaffected)Yes (if credit report is unaffected)Yes (if credit report is unaffected)Yes (if credit report is unaffected)
Late paymentsYes (any number)Yes (any number)Yes (any number)Yes (any number)Yes (any number)
IVAPossible with 25% depositPossible with 25% depositPossible with 15% depositPossible with 15% depositPossible with 10% deposit
BankruptcyPossible with 25% depositPossible with 25% depositPossible with 15% depositPossible with 5% depositPossible with 5% deposit

It is best to consult an expert bad credit mortgage advisor to get a true example which is tailored to you. Get in touch and we will match you with one of our superheroes today.

How can I improve my credit?

There is no quick fix for improving your credit but there are steps you can take which could improve your credit over time. You are still able to look into mortgages with bad credit but making these steps now could mean by the time your rate deal ends you could be eligible for more competitive rates and better lenders. 

  • Download your credit report and fix any errors
  • Avoid taking out credit before a mortgage application – especially payday loans (lenders see this an indication that you cannot manage your finances well and rely on short term high cost credit)
  • Pay all bills on time and avoid any further negative marks on your credit report 
  • Settle your debts (lenders like to see that you have paid the debts off causing your bad credit)
  • Register on the electoral roll (lenders use this to check your identity, address and citizenship) 
  • Try and stay out of your overdraft and ensure you are not using your credit card limits to the max. This will give the impression that you are in control of your money to the lender. 

How can I apply for a bad credit mortgage?

Our bad credit mortgage advisors can help find a mortgage which is tailored to you and your bad credit. Our experts have access to the whole market which means a lot more choice for you. It is also common for some lenders to only work with brokers which means there may be a mortgage out there for you that you alone cannot access. 

Get in touch today and let us help you on your mortgage journey. We have our superheroes on standby!


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