With so much emphasis on perfect credit scores, you might think it would be impossible to get a mortgage if you have poor credit history. Indeed, 69% of respondents to a recent survey said they thought their bad credit would prevent them being approved, according to Pepper Money.
Yet it might be easier than you think. Which? research has found that the number of mortgages available to borrowers with adverse credit history is growing.
On top of this, there are a number of reasons it’s far from impossible to get a mortgage with bad credit.
How many bad credit mortgages are on offer?
There’s actually no such thing as ‘bad credit mortgage’. There are just mortgage products that are available to borrowers with poor credit history.
According to data from Moneyfacts, there are over 1,600 mortgage products available to applicants with arrears, bankruptcies, county court judgments (CCJs) or individual voluntary agreements (IVAs) on their credit reports.
Of these, the majority let you borrow 70-80% of a property’s value, meaning you’ll need at least a 20% deposit to apply.
While high street banks are less likely to offer products to people with adverse credit, there are specialist lenders that cater to this market.
That said, you may pay slightly more for these products. The average interest rate on a five-year fixed-rate mortgage that accepts bad credit applicants is 3.9%, well above the overall average of 3%.
There are still low rates to be found at the top of the tables, though. If you’re moving home, and you need a new mortgage at 75% loan to value (LTV), the table below has the top three rates for you.
- Find out more: our guide to bad credit mortgages
Bad credit mortgage market growing
In August, we looked at the number of mortgage products available to people with particular kinds of bad credit. Since then, the number of deals available has increased in every category.
For products that accept bankruptcies and CCJs, this growth appears to be part of an upward trend.
For people with IVAs on their record, however, there were actually more deals available in June than there are today.
Our findings are backed up by a recent Bluestone Mortgages report, which says over half of mortgage brokers think the specialist lending market will grow by at least £1bn in the next six months.
Bad credit mortgage myths busted
The vast majority of prospective homebuyers with adverse credit are worried about being rejected for a mortgage, according to a new survey from Pepper Money. But this fear is not necessarily grounded in reality.
Bad credit mortgage rejections are low
Only 5% of those who had bought their current home after an adverse credit event said they had actually been declined for a mortgage.
This suggests the overwhelming majority of applications were successful.
You might be able to boost your chances of success by speaking to an independent, whole-of market mortgage broker. They can help you identify the lenders most likely to accept your application, based on your individual circumstances.
- Find out more: choosing a mortgage broker
You don’t always have to wait for years
The survey also found that people believed you needed to wait a long time for your credit history to recover.
Some 93% of those with adverse credit thought it was impossible to get a mortgage with a county court judgment (CCJ) that was six months old. A quarter thought they’d have to wait more than five years, while 38% didn’t know how long they would have to wait.
In truth, there are several mortgage providers that will consider applicants with CCJs that are just six months old. There is even a very small number that will look at applications from those with three-month-old CCJs. You can find out more in our guide to getting a mortgage with CCJs.
If you’ve recently been involved in an IVA, however, you might have to wait for longer – sometimes years – before you can get a mortgage.
See the table below for more detail about how lenders view the different kinds of bad credit, and how long you might need to wait to apply with them.
Bad credit is more common than you think
If you have black marks on your credit report, you might feel like it singles you out. Yet there could be millions of people in your situation.
Pepper Money’s nationally representative survey found that 15% of the population has experienced some kind of adverse credit in the past three years. Extrapolated out, this could 7.86 million adults in the UK.
You can find out more about this topic by checking out our guides on bad credit mortgages: