Borrowers with bad credit histories have been handed a boost, with several lenders offering new deals for homebuyers with County Court Judgments (CCJs), Individual Voluntary Arrangements (IVAs) and discharged bankruptcies.
Here, we look at the options for borrowers with adverse credit, and explain the criteria you’ll need to meet to get a good interest rate.
Lenders launch new bad credit mortgages
- MBS Lending (Melton Mowbray Building Society’s ‘credit repair’ arm) has launched a new suite of fixed-rate mortgages for customers with adverse credit histories. Those with IVAs, CCJs and bankruptcies will all be considered.
- Vida Homeloans has launched a series of Help to Buy mortgages, which will consider applications from people with adverse credit histories and ‘complex incomes’, such as multiple jobs and sources of income.
- The bridging loan lender Hope Capital has announced it will offer loans to borrowers with bad credit histories.
There could be further innovation to come, with the digital bank Tandem saying it plans to launch a customer-designed mortgage in 2020.
The challenger bank says it plans to help ‘under served’ customers in a ‘turbulent’ market, which could include borrowers adverse credit histories.
- Find our more: how to get a mortgage if you’re self-employed
How many bad credit mortgages are available?
Mortgage applicants with adverse credit histories are likely to see more deals and better interest rates on offer in the near future.
A report by Bluestone Mortgages says 52% of mortgage brokers believe the specialist lending market will grow by at least £1bn over the next six months.
Bluestone says brokers are commonly referring three types of client to specialist lenders: those who fall outside of mainstream lending criteria, those with irregular income streams, and those with bad credit histories.
Since we last crunched the numbers on bad credit mortgages in June, the number of deals open to applicants with CCJs and bankruptcies has increased, but there are now fewer options for people with IVAs.
Interest rates on bad credit mortgages
Bad credit mortgages come in all shapes and sizes, and the criteria applicants will need to meet varies from lender to lender, and sometimes from deal to deal.
While it’s theoretically possible to get a 90% or even a 95% mortgage with bad credit, the majority of mortgages are available to borrowers with deposits of at least 25%.
Below, we’ve taken a look at the best rates on mortgages for people with different forms of adverse credit.
A County Court Judgment (CCJ) is issued when you fail to pay money you owe and the lender has exhausted its options in trying to recoup the debt.
There are more than 1,500 mortgages on offer for people who’ve had CCJs, but they come with strict rules, including how long ago your CCJ was issued and how much money you owed.
The cheapest deals tend to be available to borrowers with maximum CCJs of £250 to £500, and those who’ve been discharged from their CCJs for a number of years.
The table below shows the best rates currently available at 65% and 75% LTV.
|Max LTV||Max CCJs||Lender||Deal type||Initial rate||Revert rate||APRC||Fees|
|65%||None in last three years||Yorkshire Building Society||Two-year fixed-rate||1.54%||4.25%||4.2%||£1,495|
|75%||Up to £250, max three in last three years||Atom Bank*||Two-year fixed rate||1.64%||4%||3.7%||£1,200|
Source: Moneyfacts. 28 August 2019. *minimum loan of £350,000.
If you’re unable to pay off your debts in full, your lender may agree to enter into an Individual Voluntary Agreement (IVA), where you’ll be contractually obliged to pay off an agreed amount each month.
Fewer lenders accept IVAs, and to get a good deal you’ll generally need to be clear of your IVA for at least three or four years.
|Max LTV||IVAs||Lender||Deal type||Initial rate||Revert rate||APRC||Fees|
|60%||Satisfied for four years||Skipton Building Society||Two-year fixed-rate||1.66%||3.99%/4.99% (after five years)||4.4%||£995|
|75%||Satisfied for four years||Skipton Building Society||Two-year fixed-rate||1.69%||3.99%/4.99% (after five years)||4.4%||£995|
Bankruptcy involves your assets being sold off to repay debts. This is a last resort, and it can take many years for your finances to recover.
If you’ve been declared bankrupt, you might still be able to get a mortgage, but not until you’ve been officially discharged from the bankruptcy (this usually happens after 12 months).
Most deals are designed for borrowers who have been discharged for at least three or four years, but the very best rates are on offer to those who’ve been discharged for six years or more.
|Max LTV||Bankruptcy||Lender||Deal type||Initial rate||Revert rate||APRC||Fees|
|60%||Discharged six years||Yorkshire Building Society||Two-year fixed rate||1.54%||4.25%||4.2%||£1,495|
|75%||Discharged six years||Yorkshire Building Society||Two-year fixed rate||1.57%||4.25%||4.2%||£1,495|
Do the big banks offer bad credit mortgages?
When looking at these deals, you might notice that some of the biggest lenders are conspicuous by their absence.
Indeed, of the 10 biggest UK lenders, only two – Virgin Money and Yorkshire Building Society – openly state that they’ll consider applicants with some forms of adverse credit.
This doesn’t necessarily mean you won’t be considered by your high street bank, however, as not all lenders are up front about the circumstances where they’ll consider applications from people with bad credit, and some will instead assess applications on a case-by-case basis.
With this in mind, it’s worth speaking to a mortgage broker who will be well-versed in the lending policies of different banks, and may be able to find you a deal you’d struggle to obtain yourself.
Getting a mortgage with bad credit: five tips
- Take time to repair your credit: repairing your credit report might take a while, but simple measures like ensuring you’re on the electoral roll can add points to your score, along with longer-term factors such as a couple of years having passed since your last missed payment.
- Be honest about your circumstances: being up front about any financial problems you’ve had and how you’ve fixed them can give you a boost when applying for a mortgage.
- Wait until you’re settled: If you’ve started a job recently, hold off applying until you’ve been there for a while and are out of any probation period. It can also be helpful to save for a little longer; the bigger the deposit you have, the easier you might find it to get accepted for a home loan.
- Don’t make multiple applications: applying for a mortgage will leave a footprint on your credit report, and multiple applications in a short time will eventually bring your score down. With this in mind, wait until you’re confident you’ll be successful before applying.
- Consider using a mortgage broker: finding the right mortgage can be a complicated process, and that’s especially the case in the adverse credit market. A whole-of-market mortgage broker will be able to assess your financial circumstances and find you the right deal.
Find out more by checking out our guides on bad credit mortgages: