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02 Nov 2018

Do Bad Credit Mortgages exist?

Picture a time before computers, before smart phones and when people trusted each other – at least in the world of finance… Yes, for a long time there were no credit scores to dictate if you’d qualify for a loan, credit card or mortgage, you’d simply be approved if you had someone to say ‘yeah, I’m pretty sure they’ll pay you back…’

But now, in 2018, your word counts for little when it comes to financial products. For those looking for a loan, credit card or mortgage, your credit score is going to dictate whether or not you’ll actually qualify for one. But there’s a term being thrown around – bad credit mortgages – and for some, it seems like a beacon of hope in the darkness of bad credit. But, are they real? Or is it just a bit of click bait? Well, you should read our blog to find out…

This week, the MO team are talking all about bad credit mortgages.

Bad Credit Mortgages – are they a thing?

Well, we hate to say this but, not really. Not in the conventional sense. Whilst there are options for those with bad credit seeking a mortgage, there’s no an actual ‘bad credit mortgage’. See, it all links to your credit score, which establishes your reliability as a borrower. This digitised score is a financial footprint, of all of your financial lending history. Now this can be bills paid under your name, loans taken out, overdrafts and even your mobile phone contract. So, for those with poor credit, it’s harder to get a mortgage – not impossible, but it isn’t always easy…

Having bad credit and applying for a mortgage can go one of two ways.

Number 1: your lender will charge more interest because of your credit score, meaning it’s going to cost you a lot more than it would if you had 'good' credit. Bad credit borrowers are seen as higher risks by lenders, because your credit score reflects your history of repaying forms of credit. As a result, those considered a higher risk will be given higher interest rates to reflect the risk they could potentially pose.

Number 2: lenders can pick and choose who they offer ‘bad credit mortgages’ to, if they will offer them at all. Whilst many lenders can, and will, let those with bad credit borrow, a lot of the high street lenders are in a position which means they can be choosey. Which, if you have bad credit, they may not offer you a mortgage at all. The rejection can feel disheartening, but it’s because of the potential risk you could pose based on your credit score.

However, there is a third, but we’ll go into this further down… All you need to know for now is that your credit score has a direct correlation to your mortgage. If you’ve got good credit, lenders will love you, and if not, well…some may, but quite a few won't i'm afraid. However, fear not. For the MO team, it’s not hopeless if you have bad credit.

Reasons for Bad Credit

There’s a multitude of reasons for bad credit, ranging from financial links to someone else with bad credit, late repayments on loans or credit cards and even being the victim of fraud. It’s important to check your credit score often for two reasons. The first, is to flag up any errors on your report, cases of fraud for example. The second is to monitor your credit score.

Whilst having poor credit isn’t ideal, having no credit is just as bad. Lenders will look at a non-existent credit score in the same way as a bad credit score. So, if you’ve got no credit, it may be time to get your name on some household bills, get a low limit credit card and make regular repayments on it. If you’ve got bad credit, and want a mortgage, there are two options we recommend. The first, is look to improve your credit – it may take a while, but it’s beneficial and will make a huge difference in the future. Better credit means more lending options are going to be open to you (for mortgages, credit cards and loans) at better interest rates. Option two, is to look into guarantor mortgages. Which we’ll explain, below.

Guarantor Mortgages

Now, we’ve already done another blog on Guarantor Mortgages, but since you’re here, we might as well explain a little bit about them.

Guarantor mortgages somewhat negate the need for you to have great credit, as well as having a high enough income amongst other things. With a guarantor mortgage, you need to have someone to sign and agree that they’ll keep up any mortgage repayments you miss – a guarantor. Most lenders will ask that they’re your parents or grandparents, or another close blood relative, but they will most definitely need to be homeowners, have good credit and an income (so they can prove they could, if needed, manage your mortgage repayments). If you want to learn more about guarantor mortgages, click to our blog or visit our Articles section for loads of resources on everything to do with mortgages.

Improve your Credit

If you’re not keen on getting a guarantor mortgage, then there’s always the option to improve your credit. Whilst it may seem like a long road, it’s worth it. Better credit means better financial options in the future, especially for loans and credit cards. And, when it comes to remortgaging, good credit is going to be beneficial. Little things that you can do is to register on the electoral role, local and national, and try and remain at an address for over a year, improving your credit score slightly. Surprise surprise, we’ve also done an article on How to Improve Your Credit, so check it out for more in-depth information.

How can MO help

The great thing about our site (not to big ourselves up too much…) is that you can compare 1,000s of mortgages based on your personal information. The info you provide to us allows us to search for a mortgage that’s right for you. We show you the mortgage options that are best suited to your situation, so, have a browse and see what we can do for you.

Whether it’s a New Mortgage or a Remortgage, we can help find you great deals! Until next week, that’s it from the MO team.

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Laura Waller.

Laura Waller has been working in the mortgages industry since 2013, joining an independent brokerage in Essex. Laura has CeMAP 2 & 3 – Certificates in Mortgages Advice and Practice. Since then Laura oversees marketing for Mortgages Online, using her experience and expertise to write articles and blogs about mortgages and related topics.

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