Your credit score plays an important role in determining whether a lender will accept your mortgage application, but it’s not the only factor they consider.
Lenders will also look at your income, your outgoings, the type of deal you’re applying for and the amount of money you want to borrow. If first-time buyers can get these elements of their application in order, they should be able to secure approval for a decent mortgage, even if they have a bad credit score.
Speaking to a specialist lender
If you are struggling to get a mortgage via the traditional methods you could speak to a specialist lender. They can provide the expertise on a particular area of lending where you’re looking for assistance.
Together Money | Specialist mortgage lender
Award-winning specialist mortgage lender
We'll take everything you earn into account
Self-employed applications need just 12 months' trading
CCJs and Defaults accepted – even in the last year
Available on a variety of properties, including high-rise, ex-council and others
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
How do I improve my credit score?
No matter how close you are to applying for a mortgage, it’s worth taking steps to improve your credit score. This will improve your chances of being approved for a better mortgage, as well as other financial products in the future.
Here are some steps you can take to improve your credit score.
Build a credit history. A lot of first-time buyers are perceived as risky applicants because they can’t show any evidence of responsible borrowing. If you haven’t ever borrowed money or set up direct debits, it’s likely your credit score is stuck at 0. Fix this by switching all your utility and telecom bills to be paid by direct debit. Also, consider getting a credit builder credit card and spending a little money on it each month while still clearing your balance in full.
Avoid late repayments and stop overdrawing your account. If you pay bills late, miss direct debits or overdraw your account, this will harm your credit score. Reduce your outgoings and live within your means to ensure this doesn’t happen.
Stop applying for so many financial products. Every time you apply for a financial product, you’ll be subjected to a credit check, which reduces your credit score. Multiple applications in a short amount of time can destroy your credit score, so avoid this if possible.
Review your “financial links”. If you’ve ever applied for a financial product jointly with someone, their credit score will be linked with yours in the eyes of mortgage lenders. If you’re “financially linked” with someone who has terrible credit, this can harm your chances of being approved for a mortgage. On the other hand, if you apply for a mortgage jointly with someone who has a great credit score, this could help lenders overlook your bad score.
Ensure your credit report is accurate. It’s possible that there are errors on your credit report that are harming your score. It’s worth checking your credit report for errors and amending them before applying for a mortgage. You can do this at no charge by contacting any of the three major UK credit reference agencies: Experian, Equifax or TransUnion (Callcredit).
How to borrow less from your mortgage lender
The more money you borrow from your mortgage lender, the higher your credit score typically needs to be. Thankfully, there are plenty of ways for first-time buyers to borrow less money from their lender, potentially allowing them to be approved for a mortgage in spite of a bad credit score.
Here are some of the most commonly-used methods.
Use a gifted deposit. The bigger your deposit, the better the mortgage you can access. For this reason, a significant percentage of first-time buyers are gifted money by family members to put towards their deposit. This could not only get you onto the housing ladder quicker and save you thousands of pounds in interest, but it could also allow those family members to avoid paying inheritance tax (provided that they live for seven years after making the gift).
The Help To Buy mortgage deposit scheme. Under this scheme, you can borrow up to 20% of your property’s value from the government to add to your mortgage deposit. There are several terms determining your eligibility for this scheme, so it’s important to understand these before applying.
Help To Buy ISAs or Lifetime ISAs. If you store your savings in either of these accounts, the government will top the account up by 25% when it comes time to buy your house. There’s a cap on the amount you can transfer into these accounts every month, but the top-ups will still allow you to borrow less from your mortgage lender.
Shared ownership. With this scheme, you part rent, part buy a property, so you’ll only need a mortgage for the percentage of the home that you’re buying.
Should I use a guarantor?
Mortgage providers tend to be more comfortable lending to applicants with bad credit if they can provide a guarantor. Your guarantor will need to have a good credit score and enough capital to cover your mortgage payments if you fall behind on them.
Frequently asked questions for first-time buyers
You can check your credit score for free by getting in touch with any of the UK’s three major credit reference agencies: Equifax, Experian or Transunion (Callcredit).
There are a few lenders offering zero-deposit mortgages, although it will be near impossible to be approved for these with a bad credit score. In reality, the minimum deposit you’ll need to save will be worth 5% of your desired property’s value. If you can save a bigger deposit, you’ll be more likely to be approved for a good mortgage deal.
You can apply with a mortgage provider directly or through a mortgage broker. Either way, you’ll need to provide a wealth of personal and financial details as part of your application. The lender will make a decision on your mortgage based on this information and the results of your credit check. If accepted, you’ll be offered a mortgage in principle, which is a guarantee that you’ll be lent a certain amount once you find a suitable property. A mortgage in principle is typically valid for 90 days.
There’s no surefire way of knowing until you submit your application. It’s recommended that you seek guidance from a mortgage advisor, who will have the knowledge to point you towards the lenders most likely to approve your application.
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Matthew Boyle is a mortgages and home services publisher at Finder. He has a 7-year history of publishing helpful guides to assist consumers in making better decisions. In his spare time, you will find him walking in the Norfolk countryside admiring the local wildlife.
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