It’s hard to get a home these days; over 30% millennials have reported that they don’t see themselves ever owning a home, and other studies and surveys have even suggested that virtually half of millennials consider it a luxury to even have any savings at all.
In short, many young people consider getting owning their very own home a pipe dream.
When all is said and done, though, there can be one gargantuan obstacle when looking for a potential mortgage, no matter how old they are; bad credit.
In these modern times, it’s not hard to slip from safety into a panic, from the black into the red, and keeping control a credit rating can be tricky. Whether it’s a missed bill or two, a CCJ, or one of the various other contributing factors that can hurt, damage or utterly ruin your credit rating, keeping both hands on the wheel can prove a challenge for anyone.
However, it’s overcoming these challenges that make you less of a risk in the eyes of mortgage providers, and even an innocent mistake can make you seem less trustworthy for big banks.
These risks, mistakes and general bad luck in life can make your credit rating a nightmare, which is where the concept of a bad credit mortgage comes into the picture. But what are these mortgages? Who would qualify for one? And how would someone go about enquiring about one?
Mortgages, whether they’re bad credit or normal are complicated, so Radcliffe and Rust decided to take a look at bad credit mortgages, tackling poor credit and mortgages as a whole. It’s easy to get lost in the jargon of mortgages, so it’s best to approach them step by step:
- What is a Mortgage?
- What is a Bad Credit Mortgage?
- Why might I need a Bad Credit Mortgage?
- Is it possible to get a mortgage even with a poor credit rating?
- What is a Mortgage Advisor?
- What options do I have for a mortgage with a poor credit rating?
What is a Mortgage?
It’s always good to cover the basics!
A ‘mortgage’ is essentially a large loan that’s granted for the purpose of buying a property, in most cases a house, that is designed to be paid off over a long period of time. The approximate average is 25 years, yet it isn’t uncommon for this timeframe to be longer. One of the primary factors to remember with mortgages is that they come with heavy penalties and risks; namely that your home can be repossessed if you don’t keep up with payments.
Mortgages come in all different shapes and sizes, varying in different factors such as the length of their duration, yet each type adheres to one constant; they charge interest depending on how much you borrow. Due to the often gargantuan amount that mortgages consist of, lenders will always want some form of safety net, a guarantee, or a sign that you’re even capable of paying them back, and that comes in the form of a ‘deposit’.
Deposits vary from case to case and between mortgages, and there are some unique, special cases where external assistance comes into play, such as the ‘Help to Buy’ scheme that the government offers (until the end of November 2019), yet there are also though require higher interest rates and larger deposits; these are the mortgages that are commonly referred to as ‘bad credit mortgages’.
What is a Bad Credit Mortgage?
Many would argue that, really, there’s actually no mortgage listed as a ‘bad credit mortgage’. Asking to see what bad credit mortgages a bank has would result in confusion, and although some employees might understand what you’re looking for they’re not officially registered under any banner. With mortgages, it’s very much a case of all mortgages being mortgages, with some being better than others; that’s all there is to it.
However, the term bad credit mortgage is often used to refer to mortgages that can be offered to those that have a flawed credit history. It’s also worth noting that ‘bad credit mortgages’ aren’t specifically for those with poor credit from the likes of debt or missed payments. Some specific mortgages consider credit ratings affected by specific, unfortunate circumstances. These can include those who have suffered from a life-altering illness, those have become widowed or people going through a divorce; the term ‘bad credit mortgage’ shouldn’t be stigmatised, as many who require them are enduring circumstances beyond their control.
Simply speaking, a bad credit mortgage is defined by being mortgages that require a higher deposit than usual, charge higher interest rates than those of conventional mortgages or are offered by those that are willing to discuss potential mortgages, despite having a flawed credit rating. Some of these elements may be enforced to allow applicants to prove that they are capable of trustworthy, while others are merely requested by a lender that isn’t established enough to take on what they perceive as a ‘risky investment’.
Why might I need a Bad Credit Mortgage?
Whether you’ve appraised your own credit rating or a lender themselves have seen you as a risk, the reasons that lead you to seek a bad credit mortgage vary in severity. These can range from simple mistakes, such as missing a bill payment, to severe misfortunes, such as declaring bankruptcy, yet no matter what the nature of these elements are they are still considered ‘red flags’ and ‘black spots’, the likes of which can remain on a record for years.
One notable ‘red flag’ for someone’s credit rating is actually a lack of red flags. When someone has never borrowed money, never had a credit card, never taken out a loan, they are deemed at best as being unproven or, at worst, being ‘suspiciously clean’. Known as a ‘thin credit file’, those who have a lack of records doesn’t show that they’d be bad with money, per se, but it doesn’t showcase any proof that they’d be good with money. It might seem odd as, in an ideal world, none of us would have a credit card, any debt and wouldn’t spend money that isn’t actually yours, but a lack of a paper trail removes any proof that you’ve ever been able to repay money.
Clearer, more obvious black spots can be proof that you haven’t paid a bill on time. This can include phone bills, tax payments, even rent, and compared to the other ‘red flags’ mentioned here, these are the least serious; except for the latter example, missing rent or mortgage payments are not taken with a pinch of salt by lenders. However, many mortgage lenders often let the missed payment slide, chalking them up to the chaos of modern life.
Diving into the more serious waters is what’s known as CCJs (otherwise known as County Court Judgments). CCJs are court-ordered debt repayments for a debt, usually when someone has filed a complaint against you, and they are not unlike IVAs (Individual Voluntary Arrangements). IVAs are fairly similar to CCJs, with the main distinction being that you yourself volunteer to repay a debt, albeit in the form of separate payments instead of one complete repayment. They’re easily the most kindly viewed circumstance out of the two, and anyone finding themselves in a situation where a CCJ is appearing would be wise to pursue an IVA.
Either of these options can be viewed subjectively by a lender, with factors such as when the CCJ or IVA was declared, ordered and resolved. If it hasn’t been fully paid yet this is still accepted, yet it can greatly influence how dark a black spot these can be.
The last element (that is without a shadow of a doubt the most severe) is bankruptcy. It’s difficult to spin bankruptcy as anything but the worst-case scenario when in debt, and only those in the most desperate of financial situations should consider declaring it. In cases involving an unavoidable bankruptcy, the circumstances around said bankruptcy will be heavily scrutinised by a lender, and they will inevitably enquire what’s changed since moving past it.
After all, bankruptcy is a serious black spot on a financial record, and lenders will always want to know why you should be considered trustworthy now that it’s behind you.
Is it possible to get a mortgage even with a poor credit rating?
In a word, yes, it is possible to get a mortgage with bad credit. These do come with pros and cons though.
As well as obviously being able to own your own home sooner, an advantage of applying for a mortgage early is that research (conducted by Which?) revealed that over 1,600 mortgage deals are specifically available for those with bad credit, so even with poor credit there are plenty of options.
However, a poor credit rating will prevent securing a mortgage from many lenders and banks, and some elements on their own can even impact open-minded providers. For example, Darlington BS won’t accept applicants with poor credit though with will accept applications with the likes of with one CCJ up to £500.
Regardless of how you approach a mortgage, from any kind of lender, one of the worst things you could possibly do is try to hide something. No matter how big or small it is, if you’re not honest with a lender and they discover some financial fault in your past (which they inevitably will) then you’ll be deemed immensely untrustworthy.
One of the most important steps you can take when pursuing a mortgage, both a standard mortgage or one that accepts a poor credit rating, is consulting with a Mortgage Advisor.
What is a mortgage advisor?
Mortgage advisors, often known as Independent Mortgage Advisors, offer an unbiased service that aids those seeking advice on all things mortgages; whether it’s seeing all of their options explained to them clearly or they’re actively pursuing a ‘bad credit mortgage’. Mortgage advisors typically don’t conform to specific lenders (for example, a bank) so generally, their advice should be as impartial as possible. The variety in mortgage brokers is surprisingly vast and complex, and so a mortgage advisor can help you navigate through your options.
It’s possible to discuss mortgages with or lenders on your own, whether they’re allied with or part of a specific bank or they have access to a larger market, but this might provide nothing more than a few options that might be confusing or difficult to decide between. A mortgage advisor, however, will put in a lot of the work for you and can potentially bring plenty of variety to the table in regards to mortgage options; some of which you may not have been able to find yourself.
Of course, as is the case with any service, their services aren’t free and they usually charge somewhere within the realm of 0.35% of the mortgage transaction, yet for this price, they could provide you not only with the best possible deal, but possibly the only deal that works well with your circumstances. You’re welcome and even encouraged to research all of your options when it comes to a mortgage, including who you should go to for advice, or even whether you should, yet external advice from the likes of a mortgage advisor could make life a lot easier.
What options do I have for a mortgage with a poor credit rating?
Whether it’s a high street bank or an independent lender, there are a surprising amount of mortgage options for those with low credit ratings. As aforementioned, most of these lenders won’t refer to these mortgages as ‘bad credit mortgages’, yet by explaining your circumstances to either a mortgage advisor, the lenders themselves or both, you’ll likely discuss a mortgage that one could qualify as a bad credit mortgage.
As of March 2019 a wealth of different lenders offered such mortgages, or at the very least were willing to discuss the possibility of a reasonable mortgage, and a list of these lenders can be seen below.
This shows that even big players, such as Halifax and Santander, are willing to discuss mortgages, even with a poor credit history in the picture, but that caution should be taken when approaching them. There’s also plenty of more locally based lenders, as opposed to national or international banks, that may be more lenient with their lending, so a lesson to take away from this is to always consider all of your options.
Above all else, the seriousness of a mortgage should never be dismissed, and you would be wise to consider your options with importance and gravity. If you’re looking for a ‘bad credit mortgage’ it may actually be more beneficial to remain patient, stay at home or in a rented situation and slowly work on improving your credit rating before going after a mortgage of any kind. Not only would this make future attempts at getting conventional, lower interest mortgages easier, but even by simply applying for a mortgage you can negatively impact your credit rating. As is the case for being turned down for a credit card, an overdraft extension or a loan, a failed application can be viewed as badly as any other red flag or black spot as previously mentioned on your overall credit rating.
It’s also vital to keep in mind that even those that can successfully sign up for a ‘bad credit mortgage’ will be given considerably less slack and potentially be scrutinised more so than conventional mortgage applicants. Therefore, there’s higher risks and possibilities of the worst occurring, such as your house being repossessed in the case of any missing mortgage payments. It should go without saying that these mortgage payments should be processed on time, yet those pursuing a ‘bad credit mortgage’ should take these possibilities with even more consideration than those with a conventional mortgage.
Weigh your options, plan your next moves carefully, and remember not to get so down over the prospect of having bad credit; these mortgages show that there’s always a glimmer of hope for those with a poor credit rating.
Article from Radcliffe and Rust