Yes, it is possible to get a mortgage even if you have bad credit, or even no credit history. However, having bad credit may limit your options and make it more challenging to secure a mortgage.
Lenders in the UK typically assess an applicant’s creditworthiness based on their credit history, which includes factors such as previous borrowing, repayment patterns, and outstanding debts. Poor credit can indicate a higher level of risk for lenders, but there are still potential solutions available.
There is an estimated £65,513 in average total debt per UK household in March 2023. However, even if you are struggling with bad credit, you can still get on the property ladder. This article aims to explain how.
What Are My Options for Getting a Mortgage With Bad Credit?
Specialist Lenders
Some mortgage providers specialise in lending to individuals with bad credit. These lenders may have more flexible criteria and be willing to consider your application despite your credit history.
However, they often charge higher interest rates and may require a larger deposit. Applying through Deedle can help you get the best deals, as we can connect you to specialist lenders who will not discriminate based on your credit score.
Guarantor Mortgages
If you have a family member or close friend with a good credit history, they can act as a guarantor for your mortgage. Acting as a guarantor means they agree to cover your mortgage payments if you default.
Improve Your Credit Score
Before applying for a mortgage, you can take steps to improve your credit score. This includes paying off outstanding debts, making regular payments on time, and calling up if you notice any errors on your credit report. Over time, these positive actions can help rebuild your creditworthiness, giving you access to better mortgage options.
Save for a Larger Deposit
Saving for a larger deposit can mitigate the risk associated with bad credit. A larger deposit means you need to borrow less, reducing the lender’s exposure. It can also help you access more competitive interest rates and mortgage deals.
Build Credit
If you have no credit at all, you can start building your credit history by opening a basic bank account, obtaining a credit card, or applying for a small loan. As long as you stay within your limits and always make timely repayments, this will build a good credit score.
Will My Bad Credit History Stay On My Record Forever?
No, bad credit information does not stay on your credit record forever. In the UK, credit reference agencies retain most bad credit information for six years, but your credit score can start improving once you establish a pattern of responsible financial behaviour and demonstrate good credit management.
Can I Get a Mortgage With a History of Bankruptcy?
Yes but it can be more challenging. Bankruptcy remains on your credit file for six years and significantly affects your creditworthiness.
Lenders may require a larger deposit, impose higher interest rates, or have stricter eligibility criteria. It might be wise to wait until you have rebuilt your credit score and demonstrated financial stability before applying for a mortgage after bankruptcy.
Can I Get a Mortgage if I Have a Low Credit Score but a Good Income?
Yes, a good income can positively impact your mortgage application, even if you have a low credit score. However, a low credit score may still limit your options and result in higher interest rates or stricter conditions. Providing evidence of a stable income, along with other positive financial factors, can increase your chances of securing a mortgage despite a low credit score.
How Long Should I Wait to Apply for a Mortgage After Improving My Credit?
There is no specific waiting period after improving your credit before applying for a mortgage. It depends on the extent of the improvement and the specific lender’s requirements. If you want to discuss your options with a broker, you can apply with Deedle to arrange a conversation for free.
Can I Get a Mortgage with No Credit History?
Yes, it is possible to get a mortgage with no credit history. Lenders understand that some individuals may not have a credit history due to various reasons, such as being young or recently moving to the country. In such cases, lenders may use various methods to assess your creditworthiness, such as reviewing your employment history, income stability, and rental payment history.
Having a stable employment history and a steady income can be amazing indicators of financial responsibility when applying for a mortgage without any credit history. Providing documentation of your income, such as payslips or tax returns, can help demonstrate your ability to repay the loan.
On top of all that, having a larger deposit will always increase your chances of being approved for a mortgage, even if it is gifted from loved ones. If your parents, grandparents, or siblings will chip in to help you with your deposit, this can compensate for a lack of credit history.
However, it can be worth noting that some lenders may have stricter requirements for borrowers with no credit history, and you may be limited in terms of the mortgage products available to you. Working with a mortgage broker like Deedle can help you navigate the options and find a lender who specialises in assisting individuals with no credit history.
Can I Refinance a Mortgage If I Have Bad Credit?
Yes! Refinancing a mortgage with bad credit can be challenging but not impossible. Refinancing involves replacing your current mortgage with a new one, typically to obtain better terms, such as a lower interest rate or a different loan term.
However, lenders may be hesitant to refinance a mortgage for borrowers with bad credit due to the higher risk involved. If you have bad credit and are looking to refinance your mortgage, it can be a lot easier to improve your credit score before applying rather than to apply right away.
Having a significant amount of equity in your home can increase your chances of getting approved for a refinancing loan. Remember that refinancing a mortgage should be a carefully considered decision, so make sure you can afford it or you could end up trapped in a debt spiral.
Can I Get a Mortgage if I Have Outstanding Debts?
Yes but having outstanding debts can affect your ability to get a mortgage, as lenders consider your debt-to-income ratio when assessing your creditworthiness. It does not, however, disqualify you.
When considering a mortgage application, lenders will review your overall financial situation, including the amount and type of debts you have. They will assess your ability to manage your existing debts alongside the mortgage repayments.
Having a plan in place to pay off or reduce your outstanding debts can improve your chances of getting approved for a mortgage. It demonstrates responsible financial behaviour and a commitment to managing your finances effectively.
Paying off high-interest debts first and keeping your credit use low can positively impact your creditworthiness. Working with an advisor can be a great step towards planning to clear your debts and get on the property ladder.
Concluding Thoughts
Although you may struggle to get a mortgage if you have bad credit, there are things you can do to swing the scales to your favour. You can get a guarantor, save for a big deposit, pay off outstanding debts, and work towards improving your credit score.
Working with a broker like Deedle can be a huge help when you apply for a mortgage. We help you to get the home financing you need regardless of your credit score.
