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What is a bad credit mortgage?
If you have bad credit, you might be wondering if you can get a mortgage. The short answer is yes, but it may not be easy. Most lenders are typically reluctant to give mortgages to people with bad credit, as they see them as a higher risk.
Bad credit mortgages are designed for people with a history of poor credit. They are typically offered at a higher interest rate than standard mortgages, but this will vary depending on the lender and your personal circumstances.
This type of mortgage is not suitable for everyone, so it’s important to understand the pros and cons before you apply.
The main benefit of a bad credit mortgage is that it can help you get on the property ladder if you have a poor credit history. However, there are some risks to be aware of, such as higher interest rates and the potential for negative equity if house prices fall.
Getting a mortgage with bad credit isn't impossible, but it is less straightforward. The good news is that paying a mortgage for a few years can improve your credit score. This can allow you to renew your mortgage with a standard lender at some point in the future.
Who are bad credit mortgages for?
This type of mortgage works well for people who are trying to get on the property ladder but may have been refused a mortgage elsewhere because of their bad credit history.
They are also suitable for homeowners or home movers whose financial situation has changed since taking out their previous mortgage.
You might have a few missed payments, had a CCJ (County Court Judgment) or may have even been made bankrupt. You might also be in, or have been in, a DMP (Debt Management Plan). These can all result in a bad credit rating, limiting your finance options.
What are the differences between bad credit mortgages and standard mortgages?
There are a few key differences between bad credit mortgages and standard mortgages.
Interest rates are higher - lenders see you as a higher risk, so they charge a higher interest rate.
You may have to pay a larger deposit - this is because lenders see you as a higher risk.
Your choice of mortgage products may be more limited - many lenders don’t offer bad credit mortgages.
What are the benefits of a bad credit mortgage?
There are a few key benefits:
- They can help people with adverse credit get on the property ladder.
- Paying a mortgage on time can improve your credit score, which can help you to access better rates in the future.
What should I consider before applying for a bad credit mortgage?
Before you apply for any mortgage, it’s important to consider your personal circumstances and make sure you can afford the repayments. If you find yourself in financial difficulty in the future and are struggling with late or missed payments on your mortgage, your home may be at risk. This will also impact your credit score and could make it even harder to get a mortgage in the future.
It’s also important to compare different mortgage products to make sure you are getting the best deal possible. Use a mortgage calculator to compare interest rates, fees and terms to find the right mortgage for you.
If you’re not sure whether a bad credit mortgage is the right option for you, it’s always a good idea to speak to a qualified mortgage advisor who can offer impartial advice.
It’s always a good idea to speak to a qualified mortgage advisor before you apply for any mortgage product. They can help you to understand your options and find the best deal for you.
How do I know if I have bad credit?
Many people don’t know what their credit score is or how it works.
Your credit score is actually the most important information about you when applying for any type of finance. Numerous different factors can affect your credit score. Because of this, you shouldn’t assume that your credit score is in good shape just because you haven’t been in debt.
Here we have put a guide together of some of the misconceptions about credit scores.
"I haven’t been in debt, so my credit score must be good"
This is a common misconception. Your credit score isn’t just based on your borrowing history. It also takes into account things like whether you are on the electoral roll and whether you have County Court Judgments (CCJs) or bankruptcies against your name.
"My partner has a good credit score, so ours will be fine"
Your credit score is actually based on your individual financial history. This means that even if your partner has an excellent credit score, yours could still be poor.
"I have never missed a payment, so my credit score must be perfect"
Missing payments isn’t the only thing that can damage your credit score. Making lots of applications for credit in a short space of time can also have a negative effect.
"I don’t need to worry about my credit score"
Your credit score is actually very important. It is used by lenders to decide whether or not to give you finance and at what interest rate. A poor credit score could mean you are turned down for finance or end up paying back more in interest and fees.
"Checking my credit score will damage it"
This is a myth. When you check your own credit score, it has no effect on your credit rating.
"I’ve been turned down for credit, does this mean I have bad credit?"
Not necessarily. There are a number of reasons why you may have been turned down for credit, and it doesn’t always mean you have a poor credit score.
It’s always a good idea to check your credit score before applying for any type of finance. That way, you can see if there is anything that could be impacting your chances of being accepted.
Your credit report
Your credit report is a record of your financial history. It includes things like whether you have missed any payments or been declared bankrupt.
It’s a good idea to check your credit file regularly, so you can keep track of your financial history and make sure there are no errors. You can get a copy of your credit file from one of the main credit reference agencies:
Equifax
Experian
TransUnion
What can I do to improve my credit score?
There are a few things you can do to try and improve your credit score:
- Check your credit report for any errors and dispute them if necessary.
- Make sure you are on the electoral roll.
- Consider using a credit building credit card to help improve your credit score.
- Make all of your payments on time and in full.
- Only apply for credit when you need it.
Bad credit mortgage lenders
Not all mortgage lenders will consider applicants with bad credit. There are a number of specialist lenders who may be able to help you.
Some of the products available from these specialist lenders include:
1. Mortgage loans
2. Bad credit remortgages
3. Self-employed mortgages
4. Adverse credit buy to let mortgages
5. CCJ mortgages
6. IVA mortgages
7. Bankruptcy mortgages
8. Second charge mortgages
Can a specialist mortgage broker help?
An experienced mortgage broker can help you to understand your options and get a mortgage with bad credit. They will have access to a wide range of mortgage products, including bad credit mortgages.
It’s important to remember that not all mortgage brokers are the same. Make sure you choose a mortgage broker who is qualified and experienced in these types of mortgages.
At Echo Finance, we've helped many people with bad credit get mortgages. We have a team of expert mortgage brokers who will work with you to understand your circumstances and find the best mortgage deal for you. Contact us today to find out more.
Find your local adviser
Frequently Asked Questions
Below you will find the answers to the questions we hear most often from Echo Finance customers:
A mortgage broker, or a mortgage advisor, is an intermediary who acts as a conduit between an aspiring borrower and a lender. It is their job to provide the mortgage applicant with impartial advice, help them choose the right product and arrange the deal with the lender.
Brokers provide services including advice on which type of mortgage to choose, providing access to exclusive rates through their lender contacts, and application support. Some can offer advice on all areas of the mortgage market, while others specialise in niche fields such as buy-to-let, bad credit, commercial finance, first-time buyers or self-employed borrowers.
People choose to apply for their mortgage through a broker because it can boost their chances of finding the right deal, while saving time and money in the long run.
- Residential mortgages: Everything from fixed-rate to tracker mortgages for first-time buyers, homemovers and remortgage borrowers
- Specialist mortgages: For borrowers who fall outside of standard lending criteria, including people with bad credit, self-employed professionals and more
- Later-life lending: Including advice on equity release, mortgages for pensioners and retirement interest only (RIO) mortgages
- Bridging & Commercial: We have specialist advisors on hand for commercial mortgages, bridging loans, development finance and more
- Insurance & Protection: Including life, home and critical illness cover for families and individuals, as well as landlord and business protection insurance
Echo Finance is regulated by the Financial Conduct Authority and is reviewed annually by an independent compliance company. All of our brokers and advisers hold industry-standard qualifications, such as CeMAP, CeRER and DipMap, where required.
We are committed to providing advice through the channels that best suit your needs. Our brokers can provide advice via phone, email, video and web chat from anywhere in the UK, but we also aim to offer face-to-face appointments for those who request them.