Getting a mortgage with bad credit can be tough, especially if you have defaults, county court judgments (CCJs), individual voluntary arrangements (IVAs) or a bankruptcy in your credit history – but it's not impossible.
This guide offers help and advice around how to get a mortgage with bad credit, but it's often helpful to talk directly to an impartial mortgage broker who can advise on your individual situation.
Can I get a mortgage with bad credit?
It's often possible to get a mortgage with a less-than-perfect credit history, although your options may be limited.
Lenders conduct a credit check on anyone applying for a mortgage. However, some black marks on your credit history will carry more weight than others, depending on the amounts of money involved and how much time has passed.
If you have a bad credit history, some high-street banks may refuse to give you a mortgage outright. Building societies can sometimes be more flexible and there are also specialist bad-credit mortgage lenders, some of which cater specifically for people who've faced illness, divorce or other difficult life events.
Specialist lenders tend to be more flexible when assessing your mortgage application, but they often charge much higher-than-average interest rates and require larger deposits in return.
How to get a mortgage with bad credit
If you have a poor credit history, there are a number of steps you can take to improve your chances of getting a mortgage.
- Give it time: blemishes on your record could be seen as less serious over time, especially if your financial situation has improved.
- Consider your partner's credit history: buying with a partner will mean their credit history gets taken into account as well as yours.
- Repair your credit history: establish a pattern of consistent payments and responsible credit usage.
- Present as a lower risk: apply when you have a stable income and try to offer a high deposit, which may mean looking at cheaper properties.
- Be honest: mortgage lenders will conduct thorough searches, and trying to hide adverse credit will look bad.
- Have an explanation: lenders will be interested in why you got into financial trouble and what you've done to remedy the issue since then.
Find out more: improving your mortgage chances - how you can strengthen your application.
Understanding rates on bad credit mortgages
It can be difficult to compare bad credit mortgage rates, as different deals will be available to you depending on your personal credit history.
Deals that allow for CCJs and IVAs, for example, will have specific rules around how long ago an IVA has to have been satisfied, and how many CCJs you can have had in recent years or months.
Ultimately, an applicant with a blip on their credit report which has now been resolved is likely to be able to obtain a much better rate than somebody with serious outstanding issues. So while some 'bad credit mortgages' will be fairly accessible to customers with poor credit history, some can be much harder to secure.
As well as having higher initial rates, deals available to people with credit problems may come with higher up-front fees. With this in mind, it's important to analyse the full cost of the mortgage before choosing a deal and take advice from a mortgage broker.
Should I buy a house with bad credit or wait to improve my score?
While it may be technically possible for you to get a mortgage when you have a poor credit history, you also have the option of trying to improve your credit score first, in order to increase your chances of getting accepted for a 'normal' mortgage. Here are some of the pros and cons of getting a bad credit mortgage:
- Choice: applicants with more minor credit issues are likely to have a decent range of mortgage options
- Faster home ownership: you'll start your journey to homeownership sooner if you take out a bad credit mortgage instead of waiting
- Higher rates: you'll often have to pay much higher interest rates if your credit history is poor
- Bigger deposit: you might have to put down a bigger deposit to secure a mortgage with bad credit
Find out more: how to improve your credit score
Remortgaging with bad credit
It's usually possible to remortgage with bad credit, but it's worth trying to improve your credit score if you have time.
Making your monthly mortgage repayments on time will help you build a stronger credit history (assuming all other debt is also paid back on time). If your credit rating has gone up after a period of time with a specialist lender, it may be possible to remortgage with a high-street lender.
Whether you’re able to secure a better rate will depend on your credit score, your income, your property’s current value and the equity you hold in it. The prospective lender will also run affordability calculations to ensure you’ll be able to afford payments at the new rate in the future.
- Find out what your monthly payments might be with our mortgage repayment calculator
A range of remortgaging deals are available on the high street, with rates similar to those offered to home movers, so it’s worth shopping around. You generally have to pay fees to remortgage, which you should also factor into your decision-making.
When considering your mortgage application, lenders tend to look not just at your credit rating, but the details of your credit history. The lender will want to know what happened, when, and the circumstances. A missed utility bill will be judged differently from a County Court Judgement, for example.
Criteria will also vary from lender to lender, so it may come down to finding one suited to your circumstances.
We've explained the main types of bad credit and how they might affect your mortgage application below - just click on the headings to find out more.
Missed payments (defaults)
Failing to make payments on time – either on bills or on outstanding debts – can be recorded as a default on your credit history. However, not all defaults are equally bad.
Generally, missing a mortgage payment is considered one of the worst types of default. Lenders are likely to be reluctant to lend to a person who has missed a mortgage payment at any point.
By contrast, missing payments for other types of bills may be considered less serious, though still to be avoided. Quantity is also relevant: not paying your phone bill for six months running will be seen more negatively than missing a single month.
If you have a series of payment defaults, your best option is to build up a history of paying bills and loans fully and on time. Lenders will want to see a prolonged period – up to two years – where you have met your repayments as evidence of your improved financial management.
Some banks offer ‘payment holidays’, where you can opt out of paying your loans for a fixed period. In some cases, however, these suspended payments may be recorded on your history as defaults. If this happens to you, contact your bank to negotiate having them removed.
Find out more: getting a mortgage with late payments and defaults
Debt management plans or IVAs
If you are in severe debt, a debt management plan may help you climb out of the hole. Under these plans, you come to an agreement with your creditor to repay a limited amount of your debt each month.
Alternatively, you can seek out an individual voluntary agreement, or IVA, which allows you to make affordable payments towards your debt over the long term, often five to six years. IVAs are recorded in a public register and while you have one in place, your creditors can't demand full repayment.
On your credit file, however, both IVAs and debt management plans are usually recorded as a series of defaults. Each month you fail to meet your minimum payment, your credit history takes a hit. This can have a severe impact on your overall credit score.
In general, banks will look for your debt management plan to have been fully paid out, followed by 12 months of on-time payments, before considering offering a mortgage.
In the case of IVAs, you may need to wait three to four years after completing the plan before applying for a mortgage.
Find out more: getting a mortgage after an IVA
County court judgments (CCJs)
A county court judgment, or CCJ, can be ordered against you if you owe somebody money and fail to pay it. A CCJ will stay on your record for six to seven years, and can be made for even minor sums.
Banks will consider the amount ordered against you in the County Court when deciding on your mortgage application. Some banks use thresholds to make their decision, so that a CCJ for £250 to £500 will be treated differently from one for more than £1,000.
In most cases, even high-street lenders may accept a CCJ on your record if it is over three years old and paid out or ‘fully satisfied’. On the other hand, a ‘partially satisfied’ CCJ – meaning a debt where only a portion has been paid back – is likely to damage your chances.
When facing a CCJ, always try to pay off the sum in full. Even if the creditor agrees to settle for a smaller amount, the CCJ may be recorded as ‘partially satisfied’ on your record and could potentially count against your mortgage application.
Find out more: getting a mortgage with CCJs
In dire circumstances, declaring yourself bankrupt may be your only option. Most high street lenders will refuse to lend to people with a bankruptcy on their record, even if it happened in the distant past.
Specialist lenders may consider your application if the bankruptcy is discharged and occurred more than six years ago. Your chances will be higher if you can offer an explanation for what happened and show how your circumstances and financial management have improved since then.
Checking your credit score
Whether or not you think these factors apply to you, you should always check out your credit report before applying for a mortgage.
The three biggest organisations for this are TransUnion (formerly Callcredit), Equifax and Experian. If you're concerned, it's worth checking how you fare with all three companies, as they all score slightly differently.
Once you have your report(s), consider what you can do to improve your credit rating, and check that all the information on record about you is correct.
In some cases, it will be better to wait until your credit history has improved so you can access more affordable mortgage deals. A good mortgage broker will be able to advise you on what mortgage deals you're likely to be accepted for or whether you're better off waiting.
It’s worth being cautious about applying for a mortgage if you think you might be rejected. Every time you make an application for credit, it gets recorded on your credit history, and unsuccessful applications can bring down your score.
If you’re applying for a mortgage in principle, lenders may be able to conduct a ‘soft check’, which does not show up on your record. However, be aware that a soft check may not uncover everything in your history, so your mortgage application could fail if issues come to light later.
- Find out more: how to improve your credit rating