A Complete Guide to Bad Credit Mortgages

Welcome to our guide to bad credit mortgages. If you need a mortgage but are worried your credit history might get in the way, you’ve come to the right place.

Here you’ll learn how these mortgages work, how to get one, why you should choose Teito to guide you through the process, and more. 

Can you get a mortgage with bad credit?

Yes. It is possible to get a mortgage with bad credit but it can be more difficult, especially through a high street mortgage provider as they generally prefer customers with clean credit. Your chances of mortgage approval will depend on the factors listed below:

• The severity of your bad credit: Minor credit problems such as a late payment are easier for lenders to overlook, while a more severe issue such as a bankruptcy or repossession is far more likely to have an impact on your application.
• How long it has been on your file: The older your credit problems, the better, as far as mortgage lenders are concerned. You will likely find that a wider range of rates and deals becomes available as time passes - even the most severe issues, such as bankruptcies and CCJs, will no longer appear on your reports after a period of 6-7 years.
• The reason the issue occurred: Mortgage lenders can be more forgiving of bad credit if you have a good explanation for it appearing against your name. For example, a missed payment because of an unexpected life event such as redundancy would be less of a hurdle than a debt management plan that was the result of irresponsible spending.

How bad credit mortgages work 

Bad credit mortgages are tailored to borrowers with poor credit, giving them the chance to secure home finance despite being less eligible than people with clean credit. They are usually offered by specialist lenders, although some high street providers operate in this market.

The main differences between a bad credit mortgage and standard home finance is that the interest rates can be higher and borrowers typically need a higher deposit. This is to offset the risk the lender is taking on when they offer finance to a customer with a history of poor credit.

Because of this level of risk, these mortgages are typically subjected to extra underwriter scrutiny, which means they can sometimes take longer to arrange.

What do mortgage lenders class as bad credit?

There’s no absolute rule about what is considered ‘bad credit’ but if you have specific issues recorded on your credit files, it might make mortgage providers think twice about lending to you, result in you being offered a less favourable deal or have to put down extra deposit.

The credit problems that lenders will accept can vary across the market. Below you can find an overview of the types of adverse credit that can impact a mortgage application:

You can find out more about these credit issues, how they can impact a mortgage application, and how to get approved if you have one of them against your name through the links.

How to check whether you have bad credit

Before you apply for a mortgage it’s wise to check your credit reports. This will give you visibility of what lenders will see when they look into you. Some people might have bad credit they were unaware of, while others will need to review the status of their credit issues.

You can check your credit files for free by signing up for a free trial with Checkmyfile. Once you have your report, we recommend going through your files with a fine tooth comb. Be sure to challenge any inaccuracies and request to have outdated information removed.

Bad credit mortgage rates

Bad credit mortgages usually come with higher interest rates than standard mortgages. In general, mortgage rates can be anywhere between half a percentage point and two full percentage points higher for borrowers with adverse credit compared to those with a clean credit history. Just how much higher yours will be will depend on these factors:

• The type of bad credit you have
• How long you’ve had it for
• The amount of deposit you have

You can compare mortgage rates for borrowers with bad credit for free on Teito. Select the 'Choose your own mortgage' option below to browse rates from 90+ lenders in real-time, or select 'speak to an adviser' if you would like specialist advice before you get started:

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Available mortgage lenders

Bad credit mortgages are commonly offered by specialist mortgage lenders who understand the needs of people in these circumstances and tailor their products towards them. There are, however, mainstream mortgage lenders on the high street who provide them as well.

This is merely a snapshot of the mortgage lenders operating in the bad credit space. Specialist providers are known to offer a wider range of deals for customers with adverse credit and can be more flexible with, but keep in mind that approaching a lender directly is not recommended.

Why you should speak to us first

Speaking to a Teito mortgage broker is a better alternative as they will give you access to the entire market, which means more lenders, rates and products to choose from, including exclusive deals. Not only does this mean you will stand a better chance of mortgage approval, the odds of securing a favourable deal will increase too.

Our brokers are experts when it comes to bad credit mortgages. Below, you can find out how we helped one of our customers get the mortgage they needed despite a debt management plan holding them back.

How we helped a client get a mortgage with a DMP

Read Case Study

Check your eligibility

Whether you qualify for a bad credit mortgage will largely depend on the age, severity and reason for your credit credit problems. But in addition to this, you will still need to meet the lender’s general eligibility criteria, which can be more stringent when poor credit is involved.

Here are the main factors the lender will assess after reviewing your credit situation:

• Deposit amount: Bad credit mortgages generally come with higher deposit requirements than standard mortgages. The exact amount you will need to put down can vary based on the circumstances surrounding your bad credit, but on average, lenders will typically be looking for around 15-20% of the property value.
• Age: Most mortgage lenders have a maximum age limit of 75 years old for applicants. Some stretch to 85 and others have no upper age restrictions at all, as long as they are confident you can keep up with your mortgage repayments into retirement. Age limits are generally the same for bad credit mortgages as they are for mainstream residential lending.
• Property type: If you have bad credit and are buying a non-standard property - i.e. one that isn’t made from bricks and mortar or has unusual features - this can be an added complication. Mortgage approval is still possible but specialist advice is recommended.
• Income type: Some lenders prefer borrowers who earn their income through full-time employment. Borrowers with bad credit who are self-employed or earn a living through non-standard sources such as royalties or investments may need specialist advice.

How to get a mortgage with bad credit

Follow the steps below to get started with your bad credit mortgage application, increase the likelihood of approval and boost your chances of securing a favourable deal:

Download your credit reports: It’s important to get an idea of what shape your credit reports are in before you apply for a bad credit mortgage. You should review how long your bad credit has been listed for and look out for anything that shouldn’t be there - errors and inaccuracies can be removed upon request.

Build credit where possible: There are simple ways you could do this ahead of your application. Make sure you’re listed on the electoral register, pay all of your bills and other credit commitments on time in the run-up to your application, and settle any debts you’re in a position to clear. Quick fixes like these can make a big difference.

Speak to a mortgage broker: The right mortgage advisor can increase your chances of a success. Our brokers specialise in helping customers with bad credit onto the property ladder. They will do the legwork finding the ideal mortgage for you, help you secure the best rate and guide you through the application process.

Ready to get started? You can book a free, no-obligation chat with a bad credit mortgage specialist today by making an enquiry with us.

Find out how much you could borrow

Having bad credit won’t directly impact the amount you can borrow as lenders will base this on your income and outgoings. Most mortgage providers cap their maximum borrowing at 4.5 times salary, but some will use higher income multiples under the right circumstances.

Mortgages of 5-5.5 times salary are not uncommon, while a minority of lenders stretch to 6 times income under niche circumstances, often limiting this extended cap to borrowers in professions such as medicine and law. Keep in mind that higher income multiples can be more difficult to access with bad credit, since you may have fewer deals to choose from. 

You can use our calculator below to get a better idea of how much you could borrow:

Pros and cons of bad credit mortgages

The table below offers a quick overview of the advantages and disadvantages of bad credit mortgages. This is designed to give you an idea of their pros and cons at a glance.

It’s important to point out that the higher rates and deposit requirements might not necessarily hit you if you apply for your mortgage through a specialist broker. Depending on the overall strength of your application, the right advisor could still secure you a competitive deal with similar repayments to what is available on the high street for customers with clean credit.

Will adverse credit stop you from remortgaging?

Not necessarily. While it can be harder to remortgage your home with bad credit, it is possible with the right mortgage lender, and a competitive deal isn’t out of the question, especially if you have built up a healthy amount of equity since you took out your original mortgage.

If you have a type of bad credit that involves ongoing debt payments, you may also have the option to consolodate them onto your mortgage when you refinance.

You can read more about this topic in our guide to remortgaging with bad credit.

Getting a buy-to-let mortgage with bad credit

Bad credit buy-to-let mortgages are available, but like with residential lending, they can be more difficult to come by. Mortgage lenders will assess your credit history in the same way too, reviewing the age, severity and reason for your adverse.

Other eligibility factors will also be considered. For example, some mortgage providers might be more willing to approve you for buy-to-let finance if you have prior landlord experience.

Rates and deposit requirements are higher for bad credit buy-to-let mortgages compared to their residential equivalents. For all buy-to-let mortgages, rates are approximately one full percentage pointer than for residential, while deposit requirements typically start at 25-30%.

Lenders who offer buy-to-let mortgages to borrowers with poor credit include:

• TSB
• Shawbrook Bank
• Leeds Building Society
• HSBC

Options for first-time buyers

It can be more difficult for some first-time buyers to get a mortgage if they have poor credit, but people who fall into this category often have extra options they could fall back on. These include government schemes and family support mortgages as well as specialist lenders.

You can read more about the options available in our guide to bad credit mortgages for first-time buyers.

Why choose Teito for your bad credit mortgage?

Many mortgage brokerages will claim to be able to get you approved with bad credit, but there are many reasons to choose a Teito advisor if you find yourself in this situation.

Our bad credit mortgage brokers have access to the entire market and are fully regulated by the Financial Conduct Authority (FCA). We will only assign you to an advisor who is an expert in the type of adverse credit that you have, but that isn’t the only reason to choose us.

With Teito’s help, you can:

• Compare rates and deals online for free in 60 seconds
• Access exclusive rates and deals
• Apply for a decision in principle online in minutes
• Access advice from a 5-star rated bad credit mortgage broker

Ready to begin your mortgage journey? Make an enquiry with us online to arrange a free, no-obligation chat with a bad credit mortgage specialist today.