Bad Credit Mortgages
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It can be very frustrating when you want to move home – either as a first-time buyer or an existing homeowner looking to move elsewhere – but you can’t secure a mortgage because of bad credit. Many people find themselves in this position and, if you’re one of them, it can limit the amount that lenders are prepared to offer you or determine if they will offer you anything at all. This is when a bad credit mortgage can help you.
At Trinity Finance, our mortgage brokers work closely with numerous specialist lenders who agree to applications from clients with bad credit ratings. Our mortgage advisers can check your financial situation, find a bad credit mortgage to suit you and help you throughout the process to ensure your application goes smoothly.
Consider a bad credit mortgage
So what exactly is a bad credit mortgage and how does it differ from other types of mortgages? Also referred to as subprime mortgages or adverse credit mortgages, they are specifically tailored for people with bad credit ratings.
Many mainstream lenders don’t offer mortgage deals to those who have been impacted by credit issues and this makes it very hard to secure a mortgage without help. Those who do offer them often charge higher rates to compensate for what they perceive to be an increased risk. Specialist lenders provide bad credit mortgages but these aren’t always advertised to the general public.
Our experienced mortgage brokers, based throughout Kent, London and Edinburgh, know which lenders to approach on your behalf. Call us on 01322 907 000 to discuss your situation with our expert financial advisers. Alternatively, send a message to us via our contact form with brief details of your circumstances and we will reply to you as quickly as possible.
How does a bad credit mortgage work?
Just like a standard mortgage, a bad credit mortgage enables you to borrow some money to purchase a property. You gradually repay this loan plus added interest over the agreed mortgage term.
The main differences are that you probably won’t be able to borrow as much as you could with a good credit rating and lenders usually charge a higher rate of interest for bad credit mortgages. The lender is likely to ask you to pay a higher deposit too, such as between 15% and 30% of the property price. This is because lenders consider applicants with adverse credit to be a higher risk.
These factors aren’t set in stone and some lenders may be more flexible. However, the more you can put down as a deposit and the less you need to borrow, the more options become open to you. This is because the risk is reduced for the lender and, in turn, you may benefit from lower interest rates.
What causes bad credit?
Your credit rating is affected by numerous factors but late or missed payments are common reasons for a good credit score to turn into a bad one. Several missed payments can result in a default. If your financial situation results in a case going to court, a county court judgment (CCJ) may be filed against you.
Sometimes, you may already have taken action to try and rectify some of your debt, such as entering into an individual voluntary arrangement (IVA) or a debt management plan (DMP). These negatively affect your credit score, as does a bankruptcy declaration.
Different factors impact your credit file in different ways. A missed payment for your mobile phone bill, for example, isn’t considered as serious as a missed mortgage payment. Even if you haven’t been in debt before, you can still have an unhealthy credit score. For example, if you hardly ever use credit, there is nothing to reflect your ability to manage finances well.
How to check your credit rating
It’s essential to check your credit rating because lenders have to ascertain that you pay your bills when they are due. A bad credit score implies that you don’t and you are then considered to be a high risk.
The best solution is to check your credit report with each of the UK’s top credit reference agencies — Equifax, TransUnion and Experian. Every company you have a financial connection with, such as your bank, credit card companies and phone provider, shares your information with these credit reference agencies. That can include the amount of debt you may have and how promptly you make payments for your bills, among other factors.
Other data is collated by the credit reference agencies, such as CCJs and records of bankruptcy as well as electoral roll information. These are all amalgamated into your credit file and a credit score is provided for you.
This is what lenders use to determine if they will lend you any money. If they do, there may be conditions to the loan, such as a higher interest rate. It’s important to obtain a credit report from each of the three main credit reference agencies as each one collects different data on you.
Increase your credit rating
Any event that resulted in adverse credit is deleted from your credit file after 6 years. There are other ways to increase your credit rating in the shorter term, though. Start by making sure you are registered on the electoral roll.
Check your information
After that, check that the information provided in each credit report is accurate. If not, you need to ensure the mistakes are corrected. If an instance of bad credit was beyond your control, such as the late payment of your salary by your employer resulting in the missed payment of a bill, you need to provide the credit reference agencies with information about this. They can include an explanation on your credit report to this effect. Whilst the information will remain on your record, the explanation may help with credit applications in the future.
Remove financial links to others with bad credit
Ensure that there are no links on your credit report to anyone else with a bad credit rating. For example, if you lived with someone who had a history of bad credit but they no longer live with you, the link to their name needs to be removed from your credit report by the credit reference agencies.
Control your spending
Stop paying for unnecessary items. For example, consider whether you really need the home shopping accounts you have or whether you use the gym regularly enough to warrant the membership fees you are paying. For items or services that are necessary, it’s essential to pay those bills on time.
Avoid getting into more debt
Don’t rack up even more debt, such as taking out a payday loan to try and clear some existing debts. This will only harm your credit score even more and a lender will view this as evidence that you cannot handle your finances adequately.
We can help you apply for a bad credit mortgage
We strongly advise that you don’t submit applications yourself to multiple lenders in the hope of being accepted by one. This is because doing so does more harm than good — it negatively affects your credit score. Each time an application is made, it is recorded on your credit file. This can be viewed by other lenders and numerous applications will look as though you’re struggling to be approved by a lender. Instead of improving your chances by applying to several lenders, you’ll actually decrease your chances of being approved for a mortgage.
A stress-free experience
We understand how hard and demoralising it can be to find a mortgage when you have a poor credit rating. Whilst it is challenging, it is possible and we are here to help you with that. With years of experience and working with numerous lenders, our mortgage brokers can take the stress out of the application process for you.
As one of the leading mortgage brokers in Kent and with mortgage advisers located throughout London and Edinburgh, we have many resources at our fingertips to help secure a mortgage for you. Simply reach out to our specialist mortgage brokers on 01322 907 000 or by email and let us take care of the rest.