Mortgage expert Peter Mugleston offers some tips on getting a mortgage with a less than perfect credit score or rating.
You've still got options
Remember the heady days of the pre-credit crunch era? When mortgages were easy to come by, anyone who wanted to buy a house could - and income and jobs were mere trivialities when it came to affordability assessments?
Subprime was booming and 100% LTV mortgages were practically conservative compared to the 110% deals popping up. In short, credit was flowing freely.
And then the crunch hit with a massive bang. Lenders all but shut up shop and risk became the watchword for the industry.
However, things didn’t stay that way. Specialist lenders who are willing and able to lend to adverse borrowers have entered the market and even mainstream lenders are loosening their criteria.
As such, borrowers with County Court judgements, a low credit score, missed payments and even bankruptcy may be accepted for a mortgage.
If you’re looking to apply and you’ve had credit issues in the past, here’s what you need to do.
Check your credit file - all of them!
It makes sense to get hold of your credit file so that you know what you’re working with before looking for a mortgage.
However, just checking with one credit reference agency may not be enough. That’s because different lenders use different agencies when assessing a mortgage application, and each agency can hold different information.
You could, therefore, be rejected because of an issue you weren’t even aware of if it’s not listed on the credit file you checked.
All three of the main agencies used by lenders - Experian, Equifax and Callcredit - offer free trials so you can check without paying a penny.
Improve your score
Once you know what you’re dealing with you can start trying to rectify it.
One way to improve your credit score is to clear some balances (if you can), and if you don’t have any credit at all, borrow something and repay it on time.
If you have severe credit issues then it may be necessary to get an adverse-specific credit card (otherwise known as a credit builder credit card) and spend and repay in full, on a monthly basis. This will show you’re able to manage your finances and will increase your score as a result.
Don’t leave footprints
If you know you’ve got something of a sketchy credit history, don’t bother making applications with high street lenders who will almost certainly be unable to help you.
Aside from being a massive waste of time, multiple applications will leave footprints on your credit file, which can lower your score and just make things even more difficult for you!
Speak to a broker
If you are a prime borrower with a perfect history then, by all means, have a go at searching for a mortgage yourself or speak to some lenders (although you’d almost certainly get a better deal going through a whole-of-market broker).
However, if you’ve got complex needs or a poor credit history you should get advice from a broker, in particular, make sure it’s a broker with experience of dealing with adverse clients – you’ll be surprised at the difference a specialist expert can make to your chances of approval.
Raise a bigger deposit
In general, the more deposit you have, the better your chances of approval, even with severe and recent credit issues.
It’s currently possible to be approved with recent defaults and CCJs, even a bankruptcy, with as little as 15% deposit, with some lenders even offering deals with just 5% deposit if issues are over 3 years ago.
Consider a new build
What is particularly important for those with credit issues to note, is that the Help to Buy scheme allows them to buy a new property with just a 5% deposit and a 20% equity loan.
As lenders are protected by only lending out 75% of the property value, some specialist bad credit lenders are now moving into the market, and with their more flexible policy, it can be that you are much more likely to be approved for a bad credit mortgage on a new build property than an older property. Strange but true!
Peter Mugleston is director of mortgage brokers Online Mortgage Advisor. The views expressed in this article do not necessarily represent those of loveMONEY.
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