Mortgages for first-time buyers with bad credit

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. Learn more about Help To Buy
• 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.

Frequently asked questions for first-time buyers

• How do I check my credit score?

  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).

• How much of a deposit do I need to save?

  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.

• How do I apply for a mortgage?

  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.

• How do I know which lenders will accept me?

  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.