Can I get a mortgage with bad credit?
It is one of the most searched questions in the mortgage space, and one of the most anxiety inducing. If your credit history is less than perfect, the fear that you will be automatically turned away by every lender can feel paralysing.
The honest answer is that bad credit makes getting a mortgage harder, but it does not make it impossible. The picture is considerably more nuanced than a simple yes or no.
What does "bad credit" actually mean to a lender?
The phrase "bad credit" covers a wide spectrum of situations, and lenders do not all treat them the same way.
At the more serious end, there are County Court Judgements (CCJs), Individual Voluntary Arrangements (IVAs), and bankruptcy. These are significant events on a credit file, and mainstream lenders will typically decline applications from borrowers with these in their recent history.
In the middle, there are things like missed payments on credit cards, loans, or utility bills, defaults on accounts, and arrangements to pay reduced amounts on debts. These are more common and vary considerably in their impact depending on how long ago they occurred, how significant they were, and whether they have since been resolved.
At the milder end, there are things like a low credit score due to limited credit history, a single missed payment from a few years ago, or a high level of credit utilisation. These may cause some lenders to hesitate, but many will still consider the application.
The key point is that "bad credit" is not one thing. It is a range of situations, and understanding exactly what is on your credit file, and how different lenders are likely to view it, is the essential first step.
What should you check before doing anything else?
Before you speak to a lender or an adviser, get a copy of your credit report. You can access this for free through the main credit reference agencies: Experian, Equifax, and TransUnion. Each lender uses at least one of these agencies, and different agencies may hold slightly different information, so it is worth checking all three.
Look for the following:
- Accuracy. Errors on credit files are more common than most people realise. An incorrectly recorded missed payment, a debt that has been settled but not marked as such, or an old address that has not been updated can all affect your score. You have the right to dispute and correct inaccurate information.
- Linked addresses and financial associations. If you have a joint account with someone who has poor credit, their history can affect your application. Make sure any financial associations on your file are current and accurate.
- What is there and when it happened. Lenders care a lot about recency. A CCJ from six years ago is treated very differently to one from six months ago. A missed payment from four years ago may not even be visible on some lenders' assessments.
What options are available?
If your credit history has issues, you broadly have two routes.
The first is to wait and repair. Many credit issues become less significant with time, and there are active steps you can take to improve your credit profile: making all payments on time, reducing outstanding balances, getting on the electoral roll, and avoiding multiple credit applications in a short period. If homeownership is a year or two away rather than imminent, a period of active credit building can meaningfully change the options available to you.
The second is to work with a specialist lender now. Not all lenders operate the same criteria. High street banks typically have strict automated systems that decline applicants below certain thresholds. Specialist or adverse credit lenders assess applications more manually, taking context into account. They will often consider borrowers with missed payments, defaults, or even CCJs, though the interest rates they offer reflect the higher risk they are taking on.
Accessing specialist lenders directly is not straightforward. Many of them work exclusively through brokers, meaning they are simply not available if you apply on your own. A whole of market mortgage adviser will know which lenders are likely to consider your specific situation and can approach the right ones without leaving unnecessary marks on your credit file.
Will the interest rate be higher?
Almost certainly, yes, at least initially. Lenders who take on more risk price that risk into their products. A borrower with a clean credit history applying at 90% LTV might access a rate of 4.5%. A borrower with a history of missed payments in a similar position might be offered 5.5% or more from a specialist lender.
This does not have to be permanent. If you take a mortgage with a specialist lender, make all your payments on time, and allow time to pass so that older credit issues become less significant, you may be in a position to remortgage to a more mainstream lender with a better rate in two or three years. Many buyers use this as a deliberate strategy: get into the property now, demonstrate a track record of reliable payments, and move to a better product when the time comes.
What else affects your chances?
Credit history is one factor in a mortgage application. Lenders also look at:
- Your deposit. A larger deposit means a lower LTV, which reduces the lender's risk. For borrowers with credit issues, a bigger deposit can make a meaningful difference to what is available and at what rate.
- Your income and employment stability. A high and reliable income goes some way toward reassuring a lender. Being in stable, long term employment is viewed more favourably than being newly self employed or on a short term contract, though self employed mortgages are absolutely achievable with the right evidence.
- The nature and age of the credit issue. A single missed payment from three years ago that has since been resolved is very different from multiple recent defaults. Lenders assess the pattern, not just the presence, of credit problems.
- Whether the debt is settled. A default that has been satisfied, where you repaid what was owed, is viewed more sympathetically than an outstanding default. Clearing any unpaid debts before applying is always advisable.
What you should not do
- Do not make multiple applications to different lenders yourself. Every full application generates a hard credit search, and multiple searches in a short period suggest to lenders that you have been declined elsewhere. This compounds the problem rather than solving it.
- Do not assume you are out of options without getting proper advice. The mortgage market is large and varied, and the criteria used by different lenders differ enormously. An adviser who works with the whole market will know where to look.
- Do not wait for your credit to be perfect if homeownership is the right move for you now. There is no such thing as a perfect credit file, and the goal is not perfection: it is finding a lender whose criteria you meet at a rate you can afford.
The short version
Bad credit covers a wide range of situations, from mild to serious. Mainstream lenders use strict automated criteria, but specialist lenders take a more manual approach and will consider borrowers that high street banks would decline. Speaking to a whole of market adviser with experience in adverse credit cases is usually your best route to finding out what is genuinely possible, without making things worse by applying in the wrong places. A credit issue in your past does not have to mean a closed door to homeownership.
This article is for informational purposes only and does not constitute financial advice. Always speak to a qualified mortgage adviser before making decisions about borrowing.