If you’ve have financial troubles in the past, whether it be missing credit card payments, county court judgements, payday loans or even bankruptcy, you may think you stand no chance of obtaining a mortgage. With most lenders’ stringent criteria, it can often feel like you’re being judged based on a piece of paper from your past, rather than what you’re capable of in the future. But whilst the criteria for a mortgage is strict, and many lenders do shy away from any with a credit score which isn’t whiter than white, there are options available to those with poor credit.
Bad credit mortgages – also known as adverse credit mortgages or sub-prime mortgages – used to be available in abundance, with many lenders willing to trust in house buyers despite having previous debt problems. But when the recession hit home, the lenders got a lot more nervous about the threat of missed re-payments, and sub-prime mortgages had all but disappeared from the mortgage sector entirely by 2008.
But now, with the UK considered to be out of the worst of it’s financial throes and house prices and buyers finally on the rise again, adverse credit mortgages are starting to make a come back. This is good news for borrowers with adverse credit history, and it is only set to get better with the launch of the Government’s help to buy scheme early in 2014.
So, if you know that you have a bad credit history and have been turned down for conventional high street mortgages in the past, what’s the next step? How do you get a mortgage with bad credit history?
1. Ensure That You Can Afford It
Whatever your situation, a mortgage is a big commitment, particularly if you have had trouble keeping up with payments in the past. Ensure you have carefully thought through what you want from your mortgage and why. Even when applying for an adverse credit mortgage, you will probably still need to prove that you earn enough money to comfortably repay it and that you are responsible enough to hold down a job and meet payments.
2. Expect To Pay More Interest
It is one of the downsides to securing a mortgage with a bad credit rating – the interest. Adverse mortgage companies generally charge a higher amount of interest, to counteract the supposedly greater risks of payments being missed, and ensure that the mortgage company is covered.
3. Visit An Independent Broker
If you haven’t been able to secure a mortgage from a high street bank or building centre, don’t panic. Your best option is probably an independent broker, who will be able to search the market of lenders on your behalf, and source the best deal to meet your history, current income and requirements. There are a number of brokers out there dedicated to specialising in adverse credit mortgages, and they’re relatively easy to find. A bad credit mortgage broker will usually have more knowledge and expertise in this specialist area, so can provide you with advice and point you in the right direction if you’re feeling a little lost.
4. Choose Carefully
Whether it is with adverse credit or not, choosing the right mortgage package can be a minefield. Consider carefully whether you would rather have the security of a fixed rate mortgage, or a variable rate mortgage which may appear less to begin with but holds the risk of increasing whilst you are tied into it. Your broker should be able to talk you through the options in more detail, taking into account your personal circumstances and income.
5. Put Down A Big Deposit
Many, although not all, adverse credit mortgage lenders will require a larger deposit, of at least 30%. When applying for a mortgage you should have already been saving for a while, and it’s recommended that you offer as large a deposit as you can. This will generally make your offer more appealing to the lender and it reduces the risk involved for them. It also shows that you can save money, a point which will fall strongly in your favour if you’ve previously had bad credit.
6. Continue Re-building Your Credit
Once you have secured a mortgage, don’t just sit back and relax. Because of your past, you need to make doubly sure that your mortgage re payments are made on time, and keep on top of all your other bills too. As a rule of thumb, after three years of paying all your bad credit mortgage payments on time, your credit rating will be restored to it’s previous health. This means that, if you wish, you may even be able to re-mortgage and get a conventional mortgage loan with a much lower interest rate.
The guest post was written by Emma Williams, who recently secured a mortgage through Just Bad Credit. Just Bad Credit Mortgages are an independent broker who specialise in adverse credit mortgages throughout the UK.