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Home » Mortgages » Bad Credit Mortgages

Last Updated: 23rd August 2023

Understanding Bad Credit Mortgages

Bad credit mortgages provide a lifeline for individuals with less-than-ideal credit histories who aspire to own a home. Unlike traditional mortgages, which are tailored for applicants with good credit, bad credit mortgages are designed to accommodate those with credit challenges.

What is a Bad Credit Mortgage?

A bad credit mortgage is a specialised type of mortgage designed for individuals who have faced credit setbacks, such as missed payments, defaults, or county court judgements (CCJs). These credit issues often lead to a lower credit score, which traditional lenders may perceive as a higher risk. Bad credit mortgages, also known as subprime mortgages, cater to this specific demographic by offering lending options that consider more than just credit scores.

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Key Features of Bad Credit Mortgages

Interest Rates: Bad credit mortgages typically come with higher interest rates compared to traditional mortgages. This is because lenders are taking on additional risk by offering loans to applicants with credit challenges.

LTV Ratio: Loan-to-value (LTV) ratio refers to the proportion of the property’s value that the mortgage covers. Bad credit mortgages often have lower LTV ratios, meaning applicants may need a larger deposit to secure the loan.

Eligibility Criteria: While credit history is a factor, bad credit mortgage lenders also consider other aspects, such as income stability, employment history, and the borrower’s overall financial situation.

Specialist Lenders: Bad credit mortgages are offered by specialist lenders who understand the unique needs of individuals with credit difficulties. These lenders are more willing to assess applications on a case-by-case basis.

Rebuilding Credit: Successfully repaying a bad credit mortgage can contribute to improving one’s credit score over time. This opens up the possibility of refinancing to a more favourable mortgage deal in the future.

Challenges of Securing a Mortgage with Bad Credit

Securing a mortgage with bad credit presents unique challenges that require careful consideration and strategic planning. At Mortgage Experience, we’re here to help you navigate these challenges and work towards your homeownership goals despite credit hurdles.

Higher Interest Rates: Lenders perceive individuals with bad credit as higher risk borrowers. As a result, bad credit mortgages often come with higher interest rates. While these rates can increase the overall cost of your mortgage, they reflect the lender’s need to mitigate potential risks.

Stricter Eligibility Criteria: Lenders offering bad credit mortgages may impose stricter eligibility criteria. This could include requirements related to your income, employment history, and overall financial stability. Demonstrating your ability to meet these criteria is essential to secure approval.

Limited Lender Options: Not all lenders offer bad credit mortgages, which can limit your choices. However, working with a mortgage broker experienced in bad credit mortgages, like Mortgage Experience, can help you access a network of lenders who specialise in this niche market.

Larger Deposit Requirements: Some bad credit mortgages may require a larger upfront deposit compared to traditional mortgages. This larger deposit serves as a way to reduce the perceived risk for the lender and increase your commitment to the loan.

Potential for Higher Costs: Beyond higher interest rates, bad credit mortgages might come with additional fees or charges. It’s important to carefully review and understand the terms of the mortgage to avoid any surprises.

Credit Score Impact: Applying for a mortgage involves a credit check, which can temporarily impact your credit score. It’s crucial to avoid multiple credit applications within a short period, as this can further lower your score and affect your mortgage prospects.

Overcoming Challenges with Professional Guidance

While these challenges might seem daunting, they are not insurmountable. Our team at Mortgage Experience specialise in helping individuals with bad credit navigate the complexities of securing a mortgage. We understand the landscape, recognise potential roadblocks, and have the expertise to guide you towards viable solutions.

Improving Your Credit Score for Better Mortgage Options

A better credit score can unlock doors to more favourable mortgage options, even if you’re dealing with bad credit. At Mortgage Experience, we’re committed to helping you understand how improving your credit score can lead to better mortgage terms and increased chances of homeownership.

Understanding the Impact of Your Credit Score

Your credit score plays a significant role in determining the interest rates and terms you’re offered on a mortgage. The higher your credit score, the more likely you are to secure lower interest rates, which can result in substantial savings over the life of your loan.

Steps to Improve Your Credit Score

Check Your Credit Report: Start by obtaining a copy of your credit report from credit reporting agencies. Review it for any inaccuracies or errors that could be negatively impacting your score.

Timely Payments: Consistently making on-time payments on your existing debts is one of the most effective ways to improve your credit score. Set up reminders or automatic payments to ensure you don’t miss any due dates.

Reduce Outstanding Debt: Aim to reduce your outstanding debt as much as possible. Focus on paying off high-interest debts first while making at least minimum payments on other debts.

Avoid New Credit: Opening new credit accounts shortly before applying for a mortgage can negatively impact your credit score. Limit new credit applications to avoid potential score decreases.

Credit Utilisation: Keep your credit card balances low in relation to your credit limits. A lower credit utilisation ratio can positively impact your credit score.

Address Credit Issues: If you have any negative marks on your credit report, such as missed payments or defaults, consider addressing them. Some creditors might be willing to negotiate or provide solutions to help improve your credit standing.

The Impact on Mortgage Options

As your credit score improves, you become a more attractive borrower to lenders. This increased creditworthiness can lead to:

Lower interest rates on bad credit mortgages

Improved eligibility for certain mortgage programmes

Increased chances of loan approval

More flexibility in negotiating terms

At Mortgage Experience, we understand the importance of credit improvement in securing a better mortgage. Our team of experienced mortgage specialists can provide personalised guidance to help you strategically enhance your credit score before applying for a mortgage. By taking proactive steps to improve your credit, you’re setting yourself up for better mortgage options and a smoother path to homeownership.

Our expert brokers won’t put you in a box – but with our help, you can look forward to packing

With a Mortgage Experience bad credit broker on your team, you can sit back and relax, safe in the knowledge that we will be doing all the heavy lifting to find you a suitable mortgage. This gives you more time to pack, and well, do the actual physical heavy lifting (should you wish) as you move into and enjoy your new home.

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Bad Credit FAQs

How do bad credit mortgages work?

Bad credit mortgages work exactly the same as standard mortgages, although the application process itself will be slightly different. You may be asked to provide more information or evidence to prove you can afford the monthly repayments. You may also be required to give a larger deposit, and the lender’s interest rates may be higher than a standard rate. 

What specialist mortgage lenders will accept a bad credit history?

Low or bad credit scores may require a specialist mortgage lender, rather than someone off the high street. There are a number of providers out there who have more flexible requirements and criteria, specifically suited for those in different situations or those who are self-employed, for example. Speak to our team today for more information on the specialist lenders out there. 

Can I get a mortgage if my partner has bad credit?

Yes, it is still possible. Your best chance of securing a mortgage when either applicant has bad credit is to use a specialist broker, who will have access to deals that traditional lenders don’t. 

Can I get a remortgage with bad credit?

It is possible to remortgage even when you have bad credit. Just as when applying for a regular mortgage, it depends on your circumstances, credit history and who you are applying with. For the best chance of securing a remortgage, even with bad credit, use a specialist mortgage broker, such as Mortgage Experience.

How do I check my credit score?

Whether you’ve never checked your credit score before, or want to take steps to improve it before starting your mortgage application journey, you can check your score quickly and easily. There are a number of free online services – such as Experian and checkmyfile – where you will have to provide your banking and credit details. 

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