Not everyone has a spotless credit history, and having a few marks on yours doesn’t automatically rule out getting a mortgage. While it’s possible to get a mortgage with bad credit, it can be more challenging and options may be more limited
There are lenders, including specialist lenders, who are willing to offer mortgages to people who have a less-than-perfect credit record, but rates are typically higher and you might need a bigger deposit.
Your mortgage options as a bad credit first-time buyer could be better than you think. Here’s what “a bad credit mortgage” means and how to find out your options.
Mortgage lenders use credit reference agencies (CRAs) like Equifax and Experian to check your credit track record when you apply for a mortgage. They do this to see if you’re a safe bet for repaying the mortgage on time.
These agencies keep a record of your financial reputation. It’s based on things like:
All this information gets turned into a three-digit number - your credit score - that reflects your credit history at a glance.
CRAs have various tiers for what they consider poor credit, fair credit, good credit, very good credit and excellent credit. For example, Equifax’s range is 0-1,000 and a “good” score is 531-670.
There’s more about this in our full guide to credit scores
There is no minimum score that guarantees you a mortgage as lenders look at more than just the numbers. Generally, they prefer applicants with a “good” or “excellent” credit score, who they view as less risky. If you have a “fair” credit score, you might still qualify, but interest rates are likely to be higher.
If your score is fair or lower, it can be hard to go it alone. A mortgage broker like Habito can help you explore lenders who may consider your situation, although approval will always depend on your individual circumstances.
Whether you can get a mortgage ultimately depends on the type of debts you have and the reasons behind your poor credit history. You can chat to a Habito expert for free to get an idea of where you stand.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Habito is a mortgage broker, not a lender. We’re authorised and regulated by the Financial Conduct Authority. This content is intended for general guidance and is not a substitute for personalised mortgage advice.
Bad credit? First-time buyer? Here are some options
There’s a whole range of deals out there. Some were created with bad credit first-time buyers in mind.
In general, there are a few things to expect if you’re a bad credit first-time buyer.
Processing your application is likely to take longer as specialist lenders scrutinise bad credit mortgage applications case by case, using manual underwriting rather than a more automated system. There’s more on the process in our guide to how mortgages work.
If you’re offered a mortgage:
There are a few types of mortgages you might be eligible for:
Specialist bad credit mortgages. These are offered by lenders who specialise in helping people with poor credit. You may face higher interest rates or need a bigger deposit – but they can get you on the ladder when high-street banks say no.
Joint mortgages or JBSPs. Pairing up with someone who has good credit (like a parent or partner) can boost your application. A joint borrower sole proprietor (JBSP) mortgage means they help pay, but you own the home.
Remortgaging when your score improves. Start with a mortgage you can get – then move to a better deal once you’ve had time to rebuild your credit score.
Remember: every lender has its own criteria. One might reject you, another could say yes.
Technical lending rules: Affordability and ratios
Lenders want to know you can afford your monthly repayments, It’s important to remember that if interest rates rise, your monthly payments could increase. Each mortgage lender has rules on what multiple of your salary it will let you borrow, and this varies for different borrowers.
It’s common for lenders to let you borrow 4.5 times your annual income, but this varies depending on the lender and your personal circumstances. If you work in some stable professions, such as law or medicine, lenders might let you go to 5x or higher.
If you’re buying a house with bad credit, lenders might go lower and limit you to 4x your income, or less.
It will depend, though, on several factors including the type of credit issues you’ve had.
If your credit isn’t good, your lender might limit your borrowing to 3x-4x income. That would mean £90,000-£120,000. Someone with better credit might be offered 4.5x income, which would be a £135,000 mortgage.
Find out more in our guide to affordability.
To help lessen the risk, lenders might ask you for a larger deposit, which could be 15% or 25% of the value of the property. This reduces the loan-to-value ratio (LTV), meaning you’re borrowing a smaller chunk of the value of the property.
If you’ve missed payments for a bill or two, it’s unlikely to stop you getting a mortgage.
But if you’ve been taken to court for not paying a debt and you didn’t respond and ended up with a county court judgment (CCJ) against you, that certainly damages your chances of getting a mortgage. CCJs can stay on your record for years, and can severely curb your mortgage options.
If you’ve been declared bankrupt, your options are curbed even more. It’s unlikely that you’ll find a mortgage, although your chances will be higher if you go through a broker.
A “default” - when a lender has closed your account after a few months of missing payments - stays on your credit file for six years from the date of the default, regardless of whether you then went on to pay the debt. The impact of a default on your credit record lessens over time.
Find out more about mortgage eligibility in our guide.
If your CCJ was within the past year, there are very few mortgage lenders that would consider your application. If it was registered 1-3 years ago, there would be more, and more again if it’s 3-6 years old. It certainly improves your chances if you’ve paid the debt (satisfied the CCJ).
Similarly with an individual voluntary agreement (IVA), you’ll improve your chances if you’ve settled the IVA. Some lenders won’t consider anyone who’s had an IVA. Others might consider you if your IVA was at least three years ago and has been settled - and you’ve kept up with all your payments since then.
After six years, any IVA or CCJ drops off your credit record.
If you’ve taken out a payday loan in the past year, many lenders will automatically reject you.
Mortgage lenders often view recent payday loans as higher risk, which may affect how they assess your application. It’s certainly possible to get a mortgage if you’ve had a payday loan, but you might need to wait until two years after the loan is settled before you apply. And you might need a specialist lender.
Your credit score isn’t fixed: there are ways to improve it. Here’s a summary:
There’s more on these, and why they can help, in our guide to credit scores.
Expert brokers like Habito search across a wide panel of lenders and can help match you with options that fit your circumstances. However, approval is never guaranteed and will depend on your personal situation and lender criteria. High street banks may offer deals from their own range, which could suit some borrowers. However, they won’t usually compare options from across multiple lenders..
It can be especially important to go for a mortgage broker if you’re a first-time buyer as you want to avoid having multiple hard credit searches on your file. And having an unsuccessful mortgage application on your credit file can harm your future chances of being approved.
At Habito, we work with a panel of lenders and may not cover every lender or deal available on the market.We:
You don’t need to face this alone. We’re here to help you figure it out.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Habito is a mortgage broker, not a lender. We’re authorised and regulated by the Financial Conduct Authority. This content is intended for general guidance and is not a substitute for personalised mortgage advice.
After three years, you’re likely to see the impact reduce on your credit score and after six years, credit problems like defaults and CCJs disappear from your record.
There’s no minimum credit score as lenders take different approaches and they don’t just look at the numbers but your whole financial situation.
Plenty of homeowners remortgage without having a spotless credit record. You might even save on your next deal.
Habito specialises in helping you get the best mortgage or remortgage, all online, for free
