• Hayley Leith

The Guide to Getting A Mortgage With Poor Credit

Updated: Jul 14

There aren’t many people whose credit score runs on full throughout their life - blips are normal, and there are ways to rectify them. When you have a low credit score, getting a mortgage is a little more difficult - but it doesn’t have to be impossible.

In this article, we’ll cover:

  • Reasons why you have a poor credit score

  • How poor credit mortgages work

  • Five steps to getting a mortgage with poor credit

  • What credit problems a poor credit lender will accept

So You Have Poor Credit - What Does That Mean?

A 2015 survey by uSwitch found that almost one third of people in the UK have been turned down for credit because of poor credit scores. More than half of those aged between 18 and 34 had been turned down for the same reason, and two-thirds of these had been turned down more than once.

Making multiple applications for credit when you have a low credit score is a poor strategy, as every rejected application does a little more damage to your credit score.

The most common reason for a poor credit score is that you have had some financial problems in the past. These might include:

  • You’ve paid bills late, or not paid them at all

  • You’ve had a County Court Judgement (CCJ) against you

  • You’ve previously had a home or other item (e.g. car) repossessed

  • You’ve been declared bankrupt at some point

Another reason that many lenders don’t consider an application can be a lack of history of borrowing. If you have never had credit before, a lender cannot assess you for reliability!

TIP: if you have ever missed payment dates, had anything repossessed, had a CCJ, been declared bankrupt, or never borrowed before (or it’s been a long time since you did), approach the mortgage market as if you have poor credit!

How Do Poor Credit Mortgages Work?

There are few differences between how an ordinary mortgage and a poor credit mortgage works. In both cases, the lender will want to see evidence of your income and outgoings, and be assured of the value of the home that you are buying. In fact, the only real differences of poor credit mortgages are that the lender will probably:

  • Require a larger deposit

  • Charge a higher interest rate

Once your mortgage has been accepted and is in place, you pay monthly repayments, with the same warning given to all mortgage payers: your home may be at risk if you don’t keep up with your mortgage payments.

5 Steps to Getting a Mortgage With Poor Credit

Step 1: Order your credit files

There are several services that provide credit scores, and not all lenders use the same ones. This may pose a problem for you.

The main credit reference agencies are Experian, Equifax, and TransUnion. If the lender you apply to uses Experian, and you have your credit report from Equifax, the two credit reports may not be the same! One may show that you have good credit, and the other than your credit rating is poor. It is therefore crucial that you get credit scores from all three credit reference agencies.

Ordering your credit scores is a bit of a bind, but it must be done. If you don’t know your credit rating, you won’t know how lenders are likely to treat your application.

Step 2: Always use a mortgage broker

Mortgage brokers are experts that know the mortgage market. They know which lenders are most likely to accept applicants with different financial circumstances, and which mortgage products offer the best interest rates and terms and conditions for your situation.

If you’ve discovered that you have a poor credit score, then you should use a mortgage broker who is a specialist in the poor credit mortgage market. They will have access to a wider choice of mortgage providers that offer mortgages to applicants that many of the main lenders will reject routinely.

Step 3: Get your deposit together

Poor credit mortgage providers tend to want a higher deposit as extra security against a default. Instead of a 5% deposit, you may need to put down, say, 15%. Your mortgage broker will be able to advise you on this. Wherever you get the deposit from (savings, friends and family, an inheritance, etc.), be prepared to pay more than those with good credit histories would.

Step 4: Work on repairing your credit score

Consider how to improve your credit score, such as obtaining a credit card to spend on and repaying the balance in full each month. This is one of the easiest ways to help repair your credit score, though you will have to be disciplined and not leave any balance outstanding on the card. To see more tips on improving your credit score, click here.

Step 5: Make sure that you can afford the mortgage repayments

Finally, ensure that you can afford the repayments on the mortgage you’re taking out. Your mortgage broker should help you to work through your income and expenses, and give you peace of mind that the mortgage offer you may receive will help you buy a new home and remain affordable for you.

TIP: Don’t make multiple mortgage applications, it will only further damage your credit score.

What credit problems will a poor credit lender accept?

Getting a mortgage when you have a poor credit score can be difficult, but it doesn’t need to be impossible. The types of credit blips that we have helped with include:

  • CCJs

  • Late payment problems

  • IVAs and bankruptcies

  • Repossessions

  • Credit defaults

  • Debt Management Plans

If you have a poor credit score and are looking to apply for a mortgage, contact Mortgage Thoughts today. You may be surprised by the mortgage possibilities available to you.

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