Bad credit mortgages

If you have paid or unpaid defaults, or even bankruptcies on your credit file, mortgages may still be available.

A lot of would-be homeowners wrongly believe that a poor credit score will completely disqualify them from being accepted for a mortgage.

While it’s true that a poor credit score limits your mortgage options, there are typically still plenty of steps you can take.

Below, we have listed some of the best options and tips to improve your chances of being accepted for a mortgage with bad credit.

What gives you bad credit?

There are a number of factors that can lead to poor marks on your credit history. You may find your credit history damaged if you:

  • Have unpaid bills. One of the main ways that people will get a bad credit history will be because they have unpaid bills. Make sure you keep your payments up to date and on time.
  • Have been late on payments. Late payments will also affect your credit history but they will not have as much of an effect as unpaid bills.
  • Have been declined for a mortgage. If you have recently been declined a mortgage this will be recorded on your credit file. Many lenders will see this as a sign of impaired credit.
  • Have applied for credit too often. It is a general rule of thumb that you should only make an application for credit once every 6 months. Any more than this could raise a red flag to lenders.
  • Have been declared bankrupt. If you have been declared bankrupt then you will have a bad credit rating that will stay on your credit file for 7 years.

How mortgage lenders check credit scores

Lenders will run a credit check on you upon receiving your mortgage application. They’ll use an external credit reference agency to do this. Most will use one of the UK’s 3 major credit reference agencies: Experian, TransUnion (Callcredit) or Equifax.

Each credit reference agency uses a different algorithm to determine your credit score, while every lender will have different boundaries for who to lend to. That’s why if you’re turned down by one lender, it doesn’t mean others won’t approve your application.

If you have bad credit, the lender might reject you completely or offer you a mortgage with worse terms.

What else do mortgage lenders check?

Your mortgage application isn’t determined solely by your credit score. Rules set under the Mortgage Market Review (MMR) allow mortgage lenders to ask more-detailed questions about your financial history. These questions will also play a key role in whether your application is approved.

Lenders typically ask for a few months’ worth of recent bank statements, so they can get a clear idea of your income and regular outgoings. You’ll usually have to conduct an interview about your spending habits too.

The idea is to get at a solid projection of your disposable income, so they can see whether you’ll be able to comfortably afford your mortgage repayments. Some lenders may be able to overlook your bad credit score if you can show this. However, if you don’t pass these affordability checks, your application may be turned down in spite of a good credit score.

Specialist bad credit mortgage lenders

There are mortgage lenders that specialise in offering mortgages to applicants with bad credit. These companies offer far higher rates than traditional lenders though.

Bear in mind that the smallest difference in mortgage rates could add up to thousands of pounds over the course of a 25-year mortgage. That’s why it’s useful to discuss your options with a mortgage adviser. You might be better off building your credit score and applying for a traditional mortgage later.

If you do get a mortgage from one of these specialists, it’s recommended to keep building your credit score and remortgage as soon as you’re likely to be approved for a better rate.

Tips to apply

It’s a lot harder to be approved for a mortgage if you suffer from bad credit, but all hope isn’t lost.
There are several UK lenders that specialise in offering mortgages to applicants with bad credit.

The terms on these mortgages are far less appealing than those offered by traditional lenders, but they allow you to get a foot on the property ladder and benefit from all the advantages of home ownership.

Still, getting approved by these lenders isn’t a guarantee, especially if you’ve been hit with problems such as CCJs, IVAs or bankruptcy. A lot of lenders will flat-out refuse applicants in this situation.

1. Get a copy of your credit file

Before you even apply for a mortgage, you’ll want to ensure that you are familiar with your credit history. All of your prospective mortgage lenders will have a close look at your history before granting you a mortgage, so you want to be able to discuss the negative marks on your credit file with confidence. This will help keep you aware of any incorrect information you might otherwise have not known about.

2. Take steps to settle any outstanding debts

New lenders will want to know what you’ve done to address your past credit mishaps, so ensure that any defaults are paid and you do the right thing by your previous creditors.

3. Apply for a mortgage with a specialist lender who looks beyond the numbers

Certain lenders in the UK specialise in bad credit mortgages. These lenders look at your credit history and take into account that bad credit can result out of a lifestyle change, such as divorce or illness, and will take into account your income and other factors to still grant you a mortgage, even if you have negative listings on your file.

4. Don’t apply for too many loans or mortgages in one space of time

Your credit file includes all previous enquiries for credit, which includes past mortgage applications. Be careful who you apply for a mortgage with if you already have bad credit. Too many applications in the same space of time can present another red flag to prospective lenders, as it could indicate money management problems.

5. Tell your lender about your bad credit listings honestly

As with every lender, a non-conforming lender will look at all the red flags in your credit history. However, they will also ask for an explanation regarding each entry, and you will have to be thorough in the details you provide. If you try to hide something, you won’t improve your credit rating. You will simply make the lender more suspicious. This may lead to your application being declined on the grounds that you were not being transparent enough or fully honest about your circumstances. It is possible to get a mortgage with bad credit, but you will have to be open and transparent with your lender.

6. Avoid applying with a spouse who has bad credit if you can

If your partner is the one with bad credit, sometimes you can avoid rejection and the higher interest rates of a bad credit mortgage by applying as a single applicant. This will obviously reduce your borrowing power, so consider this before applying this tip. Learn more about getting a mortgage if you or your partner has bad credit.

7. Eliminate your other debts to make your file look better

When your lender looks at your application, they’ll take into account all of your current credit accounts, including credit cards and personal loans. If you can pay these off and close them before applying it’ll be one less factor that will work against you when your lender decides whether to approve or reject you. This is because your lender will look at your total capacity to pay off a loan, and if you have a number of credit cards – even if they’re not currently being used or maxed out – your lender could see this as a red flag.

8. Save a larger deposit

The more you borrow from a mortgage lender, the stricter its criteria for your income and credit score. Therefore, it’s in your best interests to be able to save as big a mortgage deposit as possible.

Here are some ideas to help you save a bigger mortgage deposit.

  • Help to Buy ISA. You can make an initial contribution of £1,200 into this account, followed by maximum monthly deposits of £200. However much you’re able to save, it’s worth storing it in a Help To Buy ISA because the government will pay a bonus of 25% if you put the money towards a mortgage deposit. You can deposit a maximum of £12,000, meaning you could claim up to £3,000 worth of free money from the government.
  • Lifetime ISA. You can also claim free money from the government with this type of account. It’ll pay a 25% top-up on up to £1,000 per year, for every year until you turn 50, when you put the money towards a mortgage deposit or retirement fund. You can deposit as much as you like, but if it’s withdrawn for any other reason than a mortgage or your retirement, you’ll pay a penalty fee.
  • Gifted deposit. Many relatives of first-time buyers are happy to lend or gift them money to put towards a mortgage deposit. If you’re lucky enough to be in this position, it could strengthen your chances of having a mortgage application approved.

9. Reduce your outgoings

Even if lenders are happy to disregard your bad credit score, they’ll still want to see proof you can afford the monthly mortgage repayments.

They’ll check your recent bank statements for proof that you’re in no danger of the mortgage repayments driving you into debt. The bigger the gap between your income and your regular outgoings, the better.

As such, it’s worth taking action to reduce whatever regular outgoings you have.

Pay off as much of your existing debt as you can in order to reduce the amount of interest you’re paying on it. Cancel any unnecessary direct debits or standing orders and see whether it’s possible to lower the cost of your utility bills. Most providers will lower your monthly payments if they’re faced with the prospect of losing you to a cheaper provider, so shop around for a better deal.

10. Get a guarantor

If you’re unable to get a mortgage because of bad credit, a family member may be willing to be named as a guarantor.

This is a big step, as you and your guarantor will be tied to each other financially, which could have an impact on both your credit ratings.

The guarantor would have a charge placed against their own house, which means if the borrower defaulted on their mortgage payments, the guarantor may be liable.

Getting a guarantor doesn’t remove the need to be credit checked and if your credit is in a bad way, you may still struggle to get a mortgage.

11. Get help from family

Most lenders will accept a deposit if it’s “gifted” from a family member. This can’t be a loan and you must be under no obligation to repay the money.

The person gifting you the money will have to sign a form stating the conditions under which they’re lending you the money. These are likely to be whether they expect to live in the house in the future or whether they expect to own a share of the house.

They’ll also be asked whether they’ve consulted a financial adviser about gifting the money, which is something you could consider doing together to discuss the repercussions of the gift.

In a number of years you may be in a position to repay the money and there’s nothing stopping you from “gifting” the money back.

How do I find the right mortgage broker?

When looking for the right broker for your situation you should check the following:

  • They offer a reasonable and fair fee structure
  • They give you access to direct deals
  • They have exclusive products
  • They have links with commercial finance
  • They’re experienced and a whole-of-market broker
  • They have plenty of good reviews and happy customers

Whereas, the wrong mortgage broker is likely to:

  • Be limited to a few lenders
  • Only offer broker products
  • Charge big non-refundable fees
  • Have no exclusive deals
  • Give up on your application if it’s not straightforward
  • Lack market knowledge

Learn more about mortgage brokers here.

Bad credit scenarios

Example: Martha’s post-divorce triumph


Martha was married to her husband William for 30 years.

They separated and later divorced over the course of 2 years. During these 2 years, the stress of the divorce coupled with the loss of a second income when William moved out meant that Martha fell behind on a number of credit card payments and bills.

After the divorce and the sale of the family home, Martha wanted to purchase a small apartment for her to live in and be near her children and grandchildren.

Having a senior role at her job meant that her income was high, making her a model applicant, but her credit file showed a very different story.

Martha got a copy of her credit file, and using a credit building firm, was able to remove 1 of the 4 listings from it.

She then approached a specialist lender who could see that apart from the 3 listings on her credit file during her divorce period, the rest of her file was spotless.

3 weeks later Martha had pre-approval for a mortgage and was able to purchase a comfortable apartment.

* This is a fictional, but realistic, example.

Example: Peter and Mary

Couple with bad credit

Peter and Mary had been paying their home off for the past 20 years. Unfortunately, Peter fell ill and had to take 4 months off work. For the first 2 months they were able to cover the mortgage repayments with the amount in their savings account and Mary’s wage covering day to day expenses.

It was after this 2 months that the couple started to struggle. Bills were piling up as the mortgage repayment was deemed more important. Numerous letters from the provider sat on the kitchen table and ended up with a debt collection agency.

It was then one of their friends informed them about debt consolidation options. They enquired online and spoke to a representative the next day who was able to work out a solution for their problems.

* This is a fictional, but realistic, example.

Improving credit score

If you take steps to improve your credit score now, it’ll improve your chances of being approved for a mortgage or any financial product in the future.

  • Build a credit history. Your credit score improves every time you make a timely repayment on bills or debt. Switch all your utility and telecoms bills to be paid by direct debit, ensuring there’s always enough money in your bank account to pay them.
  • Use a credit-builder credit card. These products are designed for applicants with bad credit looking to repair their score. They’re easier to be approved for than normal credit cards, but have higher interest rates and smaller credit limits. Nevertheless, by making small payments on this card and paying the balance off in full, you can build your credit score at no cost to you.
  • Avoid late repayments and stop overdrawing your account. Fix your household budget so there’s no need to pay bills late, miss direct debits or go overdrawn in any of your financial accounts. When this happens, it decimates your credit score.
  • Review your “financial links”. If you’ve ever jointly applied for a financial product with someone, their credit score will be linked with yours in the eyes of mortgage lenders. Those who are “financially linked” with someone who has worse credit than them could find it harder to be approved for a mortgage. If this is the case for you, work to close these joint accounts as soon as possible.
  • Ensure your credit report is accurate. Check your credit report for errors and amend them before applying for a mortgage. You can do this at no charge by contacting any of the 3 major UK credit reference agencies: Experian, Equifax or TransUnion (Callcredit).

Mortgage application after an IVA

An IVA is regarded as a major red flag for many mortgage lenders. However, there are some lenders that will still consider applicants after an IVA. Our guide offers tips on having a mortgage application accepted with an IVA.

Applications after bankruptcy

Bankruptcy is the last resort for people who are struggling with bad credit. At this point, all your existing debt is written off, but your credit score is essentially obliterated. It is difficult to be approved for any major loan immediately after suffering a bankruptcy. However, there are steps you can take to get approved for a mortgage sooner rather than later.

Self-employed applicants with bad credit

Self-employed mortgage applicants are regarded as more risky than employees, because their income is less stable. If self-employed applicants also have a bad credit history, lenders can be extremely reluctant to approve their mortgage application. Nevertheless, if you’re in this position, there is plenty you can do to convince lenders you’re a reliable applicant. Our guide explains the steps you should take.

Buy-to-let mortgages

Buy-to-let mortgage providers will assess your credit score as part of your mortgage application, and you’ll find it harder to be approved if you have a poor credit history. Nevertheless, it’s still possible to be granted a buy-to-let mortgage with bad credit.

Can I get a mortgage with bad credit but a good income?

If you have bad credit but good income, that’s likely to work in your favour. It’s certainly a better position to be in than having bad credit and poor income! Ultimately, these are just 2 of many factors that are used to decide your eligibility. Our guide explains how it works.

No deposit and bad credit

You’ll need to be in an extremely healthy financial position to be approved for a mortgage with no deposit. In the current market, 100% mortgages are uncommon and it’s next to impossible to be approved for one with bad credit. Our guide explains why this is and outlines your other options.

First-time buyers with bad credit

If you’re a first-time buyer with bad credit, there are still be plenty of ways to get on the housing ladder. In fact, the government has set up a number of schemes to accommodate first-time buyers in this position. See our guide to learn what your options are.

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.

Written by

Matthew Boyle

Matthew Boyle is a banking and mortgages 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. See full profile

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