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Bad Credit Mortgage Guide

This guide was last updated 29 August 2024

Taking the steps to being a homeowner can be a daunting task, particularly if your credit history is less than stellar. However, a less-than-perfect credit score doesn’t necessarily spell the end of your homeownership dreams. At Coreco, we believe in providing clear, actionable advice to help you secure a mortgage, no matter your credit history. Here’s our helpful guide on how you can still achieve your home-buying goals, even with bad credit.

Understanding Bad Credit

Firstly, let’s demystify what “bad credit” means. In the UK, your credit score is a numerical representation of your creditworthiness, calculated by credit reference agencies like Experian, Equifax, and TransUnion. A low credit score can result from various factors, including:

  • Missed or late payments on credit cards, loans, or other bills
  • County Court Judgments (CCJs)
  • Bankruptcy or Individual Voluntary Arrangements (IVAs)
  • High levels of existing debt
  • Frequent applications for credit

Assessing Your Situation

Before diving into the mortgage application process, it’s crucial to get a clear picture of your credit situation. Obtain your credit report from one of the major credit reference agencies. Look for any inaccuracies and dispute them if necessary. This preliminary step can sometimes yield a surprising boost to your credit score.

Options for Mortgages with Bad Credit

Specialist Lenders

High street lenders might be wary of offering mortgages to those with bad credit, but specialist lenders cater specifically to this market. These lenders assess applications on a case-by-case basis, often taking a more holistic view of your financial situation.

Higher Deposits

A larger deposit reduces the lender’s risk, making them more likely to approve your mortgage. While the typical minimum deposit is around 5-10%, with bad credit, you might need to provide at least 20-30%.

Guarantor Mortgages

Having a guarantor – usually a close relative with good credit – can bolster your application. The guarantor agrees to cover the mortgage payments if you default, providing the lender with additional security.

Credit Repair Mortgages

Some lenders offer specific products designed to help individuals with poor credit rebuild their scores. These mortgages may have higher interest rates, but they provide a path toward financial rehabilitation.

Improving Your Credit Score

While pursuing a mortgage with bad credit is possible, improving your credit score can significantly enhance your options and terms. Here are some strategies:

  • Timely Payments: Ensure all your bills are paid on time. Set up direct debits to avoid missed payments.
  • Reduce Debt: Work on paying down existing debts. This demonstrates responsible financial behaviour.
  • Register to Vote: Being on the electoral roll improves your credit score.
  • Limit Credit Applications: Each application leaves a footprint. Multiple applications in a short time can negatively impact your score.

Seek Professional Advice

At Coreco, we understand the intricacies of the mortgage market and are adept at finding solutions tailored to your unique circumstances. Consulting with a mortgage adviser can provide you with invaluable insights and access to exclusive deals not available on the high street.

Final Thoughts

Securing a mortgage with bad credit is undeniably challenging, but far from impossible. By understanding your credit situation, exploring specialised mortgage products, and taking steps to improve your credit score, you can navigate this journey with greater confidence. Remember, the road to homeownership is a marathon, not a sprint. With patience, diligence, and the right guidance, you can achieve your dream of owning a home.

Your home may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

 

Andrew Montlake

Written by Andrew Montlake

Andrew Montlake, better known as Monty, began his journey with an Hons degree in Economics & Politics before starting in the mortgage industry in February 1994. As a main founder of Coreco in 2009, he successfully grew the brand, marketing, and communications, and was made MD in 2019 focussing on the overall vision, strategy, and culture of the company. As Coreco’s media spokesperson, Andrew can often be seen or heard on TV and radio as well as regularly commenting in the national, local, and trade press. He is the author of this acclaimed Mortgage Blog and is well-known for his social media, podcasts, and public speaking. Andrew is now proud to serve as Chairman of the Association of Mortgage Intermediaries, (AMI) as a cheerleader for the Mortgage Industry as a whole and continues to work at the coal face, writing mortgage business and advising clients.

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