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Bad Credit Mortgages
Our MD Daniel Condren talks about Bad Credit mortgages. Listen below
Bad Credit Mortgages
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What exactly is Bad Credit and how does it work?
When you apply for a mortgage to buy a house or to Remortgage, lenders will typically look at your credit file, where all of the information of what you’ve borrowed is held. Credit reference agencies build up a history of you as a customer, and Bad Credit is when you’ve missed a payment or defaulted. This typically damages your mortgage options, so to keep a clean credit file, be financially prudent and pay bills on time.
Can I get a mortgage with Bad Credit?
Yes, but lenders will want a little bit of additional security from a customer that’s had Bad Credit. They typically go in stages of how bad your credit issues are, so if you’ve had a one off missed payment, lenders recognise that everybody might miss something by mistake. If you’ve repeatedly missed payments, it’s not showing you as a responsible borrower and may cause difficulty.
Once your debt issues are over six months, or a couple of years old, it becomes easier to get back on the mortgage ladder. Even debt as bad as a bankruptcy or an IVA affects your chances less, the longer you leave it.
You may be requested to add a bigger deposit, typically 15%, rather than 5%, if you have bad debt, or in the case of Remortgaging a larger amount of equity.
How do I know if I have Bad Credit?
The main credit reference agencies that are recognised by banks and the building societies are Equifax, but it’s all interlinked so you can check whether you’ve got a good credit rating with any credit reference agency. Check just for your own peace of mind whether there’s anything missing or anything that’s caused a problem on your credit file before you apply for a mortgage, because some clients didn’t even know that that was an issue.
Communications bills or utility bills that were forgotten about when you moved house can be explained, and if you can evidence that, some lenders will actually disregard that because they wouldn’t consider it as repeated behaviour.
There are specialist lenders for adverse credit, but the rates will be very high, so the best thing to do is as your credit rating improves, go back to the broker to move back to the lender with a better rate. If you’ve got a Bad Credit rating, it’s only temporary and you won’t need to pay a bad Interest-rate for the thirty year period of your mortgage.
Can you get a mortgage with a low credit score?
You can have a low score without it being bad. A negative scoring might not necessarily mean that you’ve had a default, it just means that you’re not scoring as many points as you should.
Lenders are going to want to know that you’ve lived at the same address, that you’ve got some type of credit, whether that’s a debit card with a bank account. As an adult you would expect to be on the electoral roll with your local council and be registered and you would have a registered bank account to the same address. If you move around just make sure you keep accounts up to date.
You can have a low score because you’ve not got any credit, you haven’t taken any loans or credit cards, so you’ve not got any credit history. Even if you didn’t have a low score, you’re putting in a deposit of some value, so it’s not necessarily a case of not being able to get a mortgage, but some lenders are very selective in saying you need to have a good credit rating. There are other lenders that do think outside the box and consider low scores, as long as it’s not adverse.
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Is a credit score the same as a credit rating?
A score and a rating is exactly the same as the credit score gives you a score out of a certain amount and this determines whether they class you as being excellent, good, fair, average, poor, or very poor.
Can I get a mortgage with a CCJ (County Court Judgement)?
If you don’t repay a debt, a company will often send you a court hearing and if you don’t turn up, they can slap you with a County Court Judgement. CCJs severely impact your credit score, which means you’re going to have a problem buying a house or Remortgaging, especially if the CCJ is recent.
You can still get a mortgage with the CCJ, you just have to wait a minimum of six months for your credit score to recover. Once time has passed you will have availability of more lenders and the rates will get better over time. The longer the time has passed since a default or CCJ is first registered, the more likely it is that lenders are going to be happy to accept you for a mortgage.
Can you get a mortgage with an IVA?
An IVA or Involuntary Arrangement with creditors is a debt management plan. This also causes problems for lenders. They are quite hefty and lenders are worried about them. How long you’ve been in the debt management plan makes a difference. If it has been paid off, speak to a broker and be as fully transparent as you possibly can. If you don’t disclose everything, it’s going to be so much harder for the broker to find you a mortgage.
If you’ve not quite got to a house being repossessed, but you’ve missed payments on the mortgage, that’s probably the most damaging. So that might be happening right now with Covid, it might be happening with people you know, losing their jobs, but over time it will improve and it will get better.
Always go back to your current lender to see what support and guidance they can offer you first and if they can’t offer you anything, speak to a broker to see whether there are options for you to move to a different lender once the arrears have been fixed, but any financial adviser should be able to help you in that type of scenario.
Is the process any different for First Time Buyers or if you were to Remortgage with Bad Credit?
It’s the same assessments whatever the purpose of the borrowing. You’re going to have problems as a First Time Buyer with Bad Credit, whereas if you’re Remortgaging, you’ve probably paid down the mortgage over time, so you’re going to get equity in that house. The likelihood of being able to Remortgage is probably easier for people that have already got a mortgage and some history.
As a first Time Buyer, it’s just down to the circumstance of the customer. A broker can find the lenders that can help, and even if we might not be able to do it now, we will point you in the right direction. If you come back to us in six months with a certain level of deposit or savings, there should be more options available.
What would be your key advice to people with Bad Credit?
Don’t bury your head, you might have had problems and you might not want to share what’s happened, but we’re all human, we all make mistakes, and we all understand that the financial implications probably could affect that. The faster you face up to it, the faster you can get on the housing ladder.
If somebody has got a Bad Credit rating, seek advice on how to improve it. We’re here to help if somebody needs that help and that guidance and support. Pick up the phone and speak to us, and don’t feel ashamed to seek that advice so that you can move on.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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