In This Article
What is a bad credit mortgage?
Mortgage lenders lend to all types of people, and one category is people with impaired credit files. Some lenders may refer to these as bad credit mortgages, credit impaired mortgages, adverse mortgages and so on.
These are for people that have had some difficulties paying a person or organisation in the past and as a result, their credit file reflects this adverse history. Adverse credit is complex and it comes in all shapes and sizes so this could include bankruptcies, individual voluntary arrangements (IVA), debt management plans (DMP), arrears, defaults, county court judgments and so on.
Different mortgage lenders have different rules around the adverse credit such as what it was, who it was to (e.g. a bank or a telecoms company), how much was owed when it happened, whether the debt is now clear and more.
Due to the number of factors to take into account when looking at a bad credit mortgage, it’s best to speak with a professional mortgage adviser with experience in credit-impaired customers to get bespoke advice?
Check My File gives you data from all three of these credit reference agencies.
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What are some different types of bad credit that affect people getting mortgages?
There are several different kinds of bad credit and here we give you more information about each.
Bankruptcy is a legal process through which individuals can relieve themselves of some or all of their debts. This is when they are unable to pay and need a fresh start.
A person is bankrupt for a minimum of 12 months and then becomes discharged.
Individual Voluntary Arrangement (IVA)
An IVA is when you enter an agreement to pay all or part of your debts on revised terms as you are struggling to make the payments. This usually goes on for several years and creditors receive a percentage of what they may have otherwise been paid.
Payments are made to an insolvency practitioner who then divides the money across the creditors.
IVAs are usually seen by lenders as slightly less severe than bankruptcies.
Debt Management Plan
A debt management plan is an agreement that an individual enters into when they still plan to pay all their debts but need the terms changed so that they are in a position to make the payments.
For example, this may mean the creditors agreeing to be paid over a longer period. With a longer-term to make payments, the monthly payments are then smaller so more affordable to the individual.
Debt management plans are set up by a third party such as Stepchange.
County Court Judgement (CCJ)
A CCJ is issued when an individual or company takes you to court as you owe them money and then you do not respond following the hearing to clear this debt.
If the judge rules that owe the money, you are given one month to clear the debt. If you do not do it, a CCJ is put on your credit file which then stays for six years.
A default appears on your credit file when you have not paid a creditor for some time (usually six months) and at that time, the creditor closes the account. They may then arrange for the debt to be sold to a debt collector to retrieve the payment. Defaults will remain on your credit file for six years before being deleted.
Missed payments are shown when you do not pay your creditor on time and as a result, they mark your file with having a missed payment. If you missed just one and then caught up, it would show on your credit file as a status one missed payment. Creditors usually keep an account open until there are six missed payments in a row (status six) before closing the account registering a default on your credit file and potentially selling the debt to a debt collector.
Who offers adverse credit mortgages?
There are many lenders in the UK that have products that allow adverse credit. Even some prime lenders and products can sometimes allow the lighter adverse credit such as missed payments but this will depend on the individual scenario so best to speak with an experienced mortgage adviser.
At the time of writing, the lenders that tend to have products designed for the heavier adverse credit (CCJ’s, IVA’s, bankruptcies etc) include Together, Pepper Money, Precise Mortgages, Kensington and more.
There are many so your mortgage adviser will be able to confirm who the suitable lenders are for your situation.
What is a life event?
A life event is a common expression heard when looking at bad credit mortgages. The meaning of a lifetime event is an unexpected occurrence that put you in a position where you were unable to make your repayments on your debts.
For example, this could mean that everything was under control until you were diagnosed with an illness that prevented you from going to work and earning money. This in turn meant that your mortgage could not be paid along with debts and left you with bad data on your credit file. This may mean that you are now in a position where lenders are not accepting applications from you.
Life events come in many different forms, they could include illnesses, redundancies or even bereavements that meant a partner was not bringing in an income or the grieving process stopped a person from being able to work and earn their own money.
Some mortgage lenders can be flexible with events such as these if they can see a correlation between when the life event took place, the adverse credit period and then better conduct at other times. This may give lenders that the bad credit took place due to an unexpected event that had a negative impact on the applicants and it was out of character for the applicant to not make payments to their creditors.
Do payday loans affect me getting a mortgage?
Payday loans often have a negative effect on mortgage applications, certainly with the prime lenders. The reason is, that if people are using high rate short-term finance to make it through the month until their next pay credit, it often means that their cash flow is very tight and they are running out of money before their next day.
When you take on a mortgage, you are pledging to pay them monthly regardless of the circumstances so if it seems that you are not able to make it through the months without assistance, most lenders will not accept an application until a certain amount of time has passed, for example, six to twelve months.
Each lender will however have their view on how they look at payday loans so it’s always best to find an experienced mortgage adviser that can work out your options and give you the advice that you need.
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I have adverse credit and have been told I need a bad credit lender. When can I have a standard mortgage product with a prime lender?
This will depend on several things, for example, how severe the bad credit was, when it happened, whether it has been repaid, the equity within your property, the amount of money that was defaulted on and more.
Bad credit shows on a credit file for six years before it comes off. It may be that the mentioned bad credit does not need to be off the credit file entirely to get a prime mortgage but the longer ago it was, the better.
A mortgage adviser with experience in credit-impaired mortgages will be able to look at your credit file to get an idea of when they believe you may start qualifying for a prime mortgage again taking into the data on the credit file.
The adverse credit has now been repaid. Does this improve things and can I now get a mortgage with a prime lender?
Repaying the adverse credit will certainly not be a bad thing as it always looks better than when someone is not prepared to repay their creditors.
It does not mean however that the adverse credit has not occurred and it will still be present on a credit file, however, it will show as satisfied rather than still to be paid.
Depending on what the adverse credit was and the lender, it may open up more options that were not available if the money owed had not been repaid.
There is no guarantee of this however as the report will still show that there was a period between when a payment was supposed to have been paid and when it finally happened so it may still mean that many lenders will not accept an application until more time has passed.
You should speak to a qualified mortgage adviser about adverse credit mortgages for more clarification.
Are the rates and fees higher for bad credit mortgages?
In general, mortgage products that are designed for people with adverse credit are more expensive than prime mortgages with standard lenders.
The rates and fees will depend on the lender, the loan to value, and potentially the level of adverse credit (as some products are tiered which means that a lower-tier may accept less bad credit than a higher-tiered product) and sometimes more.
Fees may not always be more on products that are for credit-impaired customers but the interest rate very often is. Mortgage products constantly change so your mortgage adviser should be able to confirm this.
Do you get bad credit buy to let mortgages?
Some lenders can offer buy to let mortgages for people with adverse credit on their credit files. Not all lenders offer this with some needing the credit file to be completely clean for the last six years.
The terms of the mortgage will depend on the lender and how much bad credit there is. Some may require a larger deposit than prime buy to let lenders and the mortgage products will usually be more expensive due to the adverse history of the applicants.
Do you get bad credit mortgage brokers?
You certainly get mortgage brokers that arrange a lot of mortgages that are for people with adverse data on their credit files. Some mortgage brokers specialise in this area so they are working daily with mortgage lenders that accept people with bad credit.
Although not essential to work with a mortgage broker that solely deals with adverse credit mortgages, it would be highly recommended to find a mortgage adviser that has plenty of experience in them.
It may be that the bad credit showing on the credit file is not severe enough to require a bad credit mortgage and that a prime high street mortgage lender can consider the deal instead. An experienced mortgage adviser will be able to get a full understanding of the scenario, review an applicant’s credit file and give bespoke advice accordingly.
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An experienced mortgage adviser can find you a bad credit mortgage but it comes in all shapes and sizes so best to tell an experienced mortgage adviser the full situation so they can look for the right lender.
The amount of deposit that you have, your income, the extent of bad credit and the property will all be factors to be considered by your mortgage adviser when looking for a suitable mortgage product for you.
If the adverse event was very light (for example, a few missed payments or a small default) your adviser may even be able to still get you a non-adverse prime mortgage so this is why taking professional advice is always best.
Make sure that your adviser is regulated by the Financial Conduct Authority.
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