Mortgages for First Time Buyers with Bad Credit
It’s commonly accepted that being a first-time buyer isn’t an easy position to be in on the mortgage market. Admittedly, this is quite true. Especially considering the state of today’s interest rates, mortgages seem to be becoming increasingly out of reach owing to how financially infeasible they are for many.
Moreover, your average high street lender demands a lot from prospective borrowers, the least of which being an excellent financial track record. And so, the issue of getting a spot on the property ladder is considerably amplified if you’re looking to buy your first home and have previously run into financial problems, however inconsequential they might initially seem.
Indeed, if you’re a hopeful first-time homeowner who has previously encountered a certain degree of monetary instability, then it’s fairly possible for a lender to outright reject your mortgage application. In fact, obtaining a good mortgage deal in the current climate is difficult regardless of whether it’s your first or second property. Evidently, this causes a high level of worry and concern among first-time buyers and leads them to brush aside the prospect of owning a home altogether for some years.
However, one of the best features of the mortgage market is that it houses a wide array of products so that, whatever your personal situation or individual circumstances, there’s a housing solution out there for you. As such, mortgages for first-time buyers with bad credit are certainly attainable, but they are a little harder to secure than standard residential mortgages.
Followingly, what should be an incredible achievement becomes an uphill struggle rather quickly. It’s for this reason why we strongly suggest you hire an expert mortgage broker to thoroughly inspect your case in order to entitle yourself to the deals most suitable for your specific financial position. We at The Mortgage Genie have assisted plenty of our UK clients by getting them a mortgage for bad credit first-time buyers, in addition to handling all the paperwork involved. If you’re interested in joining those among our success stories, then be sure to get in touch at 01915809890 today.
Yet still, despite what our mortgage services can do for you, it remains pertinent that you’re informed on everything there is to know about mortgages for first-time buyers with bad credit. So that you can come to a clearer understanding on the subject, we’ve put together this piece which goes over all the salient details while answering the topical questions. We’ll cover:
How does bad credit impact my mortgage application as a first-time buyer?
Should I improve my credit score before applying as a first-time buyer?
Do I need a guarantor if I’m a first-time buyer with bad credit?
Can one person’s bad credit history affect a joint mortgage application?
How does bad credit impact my mortgage application as a first-time buyer?
All lenders, as part of their eligibility assessments, are required to carry out a hard credit check so that they can get a comprehensive overview of your financial history. The underlying goal of a credit check is to reduce the amount of risk which the lender in question is taking on by allowing you to borrow from them. Namely, they need complete assurance that you won’t fail to keep up with your monthly mortgage loan repayments.
Mortgage providers use the quality of an individual’s credit score as an indicator of how capable a borrower you would be. As such, if you have a poor credit rating and are therefore classed as having bad credit, a lender would be taking on more risk by approving your application, as opposed to approving someone with an excellent credit score. Moreover, the context behind your having adverse credit is of great significance and this is - alongside your credit score - revealed by a hard credit check.
Specifically, lenders are looking to see whether your poor credit rating has arisen from your having had a court county judgement (CCJ), an IVA, or if you’ve ever failed to meet payday loans or claimed bankruptcy. As we mentioned, instances such as these can ultimately result in rejection. Although, each bears a differing level of severity and if they occurred more than 6 years ago, then their effect on your mortgage application will be decreased.
How can I check if I have bad credit?
It’s important to check if you have bad credit before you apply for a mortgage because hard credit checks leave a mark on your credit report. So, if you want to get an idea of if your current financial suitability is sufficient before you apply for a mortgage, then you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will also help you to see if there are any potential mistakes and fraudulent activity on your profile, so that you are able to deal with such problems as soon as possible. The trial and subscription can be cancelled at any time.
Can I get a mortgage as a first-time buyer with bad credit?
Simply put, yes, you can absolutely get a mortgage if you’re a first-time buyer with bad credit. After all, the state of your credit score isn’t the only thing that factors into a mortgage provider's decision to lend to you. Without understating the significance of a good credit history when it comes to getting a mortgage, your credit score merely provides an indication of your eligibility, rather than presenting the full picture.
For instance, a lender’s criteria also substantially takes into account your affordability. On this point, as a general rule, lenders are typically willing to offer up to 4x an individual’s annual income. Similarly, the size of the mortgage deposit you’ve got saved up will, again, play an important role. In essence, the larger the deposit you can afford to put down, the less inherent risk a lender is taking on, and this thereby improves your chances of approval.
To offer an example, a 40% deposit - which would mean you qualify for a 60% LTV mortgage - clearly exhibits good money-handling abilities on your part and can work to effectively offset a credit rating on the lower end of the scale.
Should I improve my credit score before applying as a first-time buyer?
Improving your credit score before applying for a mortgage is always advisable, regardless of if it will be your first home or not. Reason being, that lenders use your credit score as a principal indication of how reliable a borrower you would be, as discussed.
In turn, this fundamentally works to widen the options available to you, given that more lenders will be inclined to accept your application, as opposed to if you had a poor credit rating. Additionally, having an excellent credit rating also entitles you to the most competitive mortgage products for your personal circumstances.
Though, on the back of the previous point, a good credit score isn't a requirement to getting a mortgage if you’re particularly eager to own a property. Notwithstanding, you can improve your credit score by entirely paying off any outstanding debt you may have, ensuring that you’re listed on the electoral roll, by reviewing the number of credit accounts that are open under your name, and by paying off credit card usage consistently. The latter, being a way to show lenders that you’re capable of regularly making repayments in a timely manner.
Do I need a guarantor if I’m a first-time buyer with bad credit?
One of the leading mortgage solutions for first-time buyers with bad credit is what’s known as a guarantor mortgage. Guarantor mortgages are where you have another individual, such as a friend or family member, fulfil mortgage repayments on your behalf if you are unable to for whatever reason. In this way, a guarantor literally ‘guarantees’ that your mortgage repayments are paid in full every month.
Of course, not every first-time mortgage applicant will need a guarantor. For example, if you had a healthy enough annual income to adequately cover your projected outgoings along with a sizable mortgage deposit. On the other hand, if you’re not in such a financially stable position, as displayed by a notably low credit rating perhaps paired with outstanding debt, then you might indeed require a guarantor.
Can one person’s bad credit history affect a joint mortgage application?
Another way in which first-time buyers make a mortgage loan more accessible is by taking out a joint mortgage, a mortgage where two parties are responsible for the ensuing monthly repayments. Again, this often refers to a friend, family member, or partner. Joint mortgages have the intrinsic benefit of lessening the load of mortgage repayments due to how these arrangements divide the entailed monthly cost.
Albeit, one caveat attached to joint mortgages is that if one of the candidates has a history of bad credit, then this impacts the strength of the overall mortgage application, even leading to rejection.
This is because a lender will take both of your credit ratings into account during their assessment in case it’s likely that one of you will fail to hold up your end of the joint agreement. Yet, to reiterate, the severity of the financial issues concerned here is of great relevance. I.e., it’s possible for leniency to be shown towards a late payment, whereas things like repossessions cannot be counterbalanced by another’s credit score.
How to get a mortgage as a first-time buyer with bad credit
As we’ve illustrated, it can be quite difficult to get your foot onto the property ladder if you’re a potential first-time buyer who has bad credit, given that there just won’t be a wide array of lenders ready to accommodate your personal situation and financial circumstances. And, if you do eventually find a willing lender, they could be offering you a mortgage loan with excessive interest rates. This last remark, being of significance when the extra fees and charges that come with every mortgage package are factored into the equation.
However, this rigidity only represents the approach taken by high street lenders and mainstream building societies when selecting their applicants for a mortgage. Especially if you’ve got bad credit, opting to go with a specialist lender is singularly advantageous. Specialist lenders have a much more flexible attitude towards those who have experienced financial mishaps, and are equipped to deal with more complex applications effectively.
The crux is that you won’t find such lenders via the web, rather you can gain access to specialist lenders by contacting a specialist mortgage broker who has a pool from which to choose the most suitable one for you. Hiring a specialist mortgage broker could mean that you are able to secure a 95% LTV mortgage, a mortgage requiring a deposit as little as 5%. Further still, they will work to get you the best available interest rates for your position, despite the usual barriers.
We at The Mortgage Genie have an in-depth understanding on how to get a mortgage and are dedicated to helping people secure loans of all types, including those for first-time buyers with bad credit. We hope that this piece has afforded you with reassurance concerning getting a mortgage as a first-time buyer with bad credit by answering the overriding questions.
Each day we support a growing number of people in achieving housing happiness by locating the perfect mortgage product for them, one that’s tailored to their personal situation and individual circumstances, as well as by guiding them through every step of the process. If you require a team of expert mortgage brokers, then be sure to contact us at 01915809890 and we'll begin to plan your ideal mortgage solution. And why not see how much you could borrow up to today by using our mortgage calculator?
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.