Steve from the Momentum team joins the Mortgage and Protection podcast to talk about Bad Credit Mortgages.
Steve from the Momentum team joins the Mortgage and Protection podcast to talk about Bad Credit Mortgages.
Bad credit or adverse credit is where someone has failed to keep up to their side of the bargain on a credit agreement or contract.
At the less serious end of the scale are missed or late repayments on unsecured loans, credit cards, lease, and finance agreements, or mobile phone contracts. More serious credit issues are missed mortgage payments, defaults, CCJs (County Court Judgements), Involuntary Arrangements, and Debt Management Plans, through to bankruptcy or repossession.
Yes – it’s surprising how many people don’t know they have a bad credit score. An example is where you decide to end your mobile phone contract, but instead of calling the phone provider, you stop the direct debit. But the mobile provider will record a missed payment for each month of the contract. Store cards are also a common cause of this.
It’s a good idea to check your credit score regularly – it can help spot fraud as well as issues. We recommend using https://www.checkmyfile.com/?ref=stephendickinson&cbap=1 because this looks at all three main reference agencies: Experian, Equifax, and TransUnion.
There are specialist lenders that will consider all kinds of different situations, with some being quite accepting of adverse credit. Even some high street lenders are comfortable with minor credit blips like missed repayments.
Make sure you have direct debits set up for all your contracts and agreements so you don’t miss any payments. It’s too easy to forget to pay otherwise. If you have any debts, pay them back as quickly as you can, and never take out a payday loan.
Some people have little to no credit history at all, which can also have a negative impact. If you’ve had no financial agreements, hire purchase agreements, or loans, there’s very little data for the lender to decide whether you’re a safe person to lend to.
In this situation, it can help to get a credit card and use it just for small bills like fuel or food, but it’s crucial to pay it off every single month.
In most cases, yes – although often it will require a bigger deposit. Lenders that accept adverse credit typically want a 15% to 25% deposit. As well as a larger deposit you can expect interest rates to be higher as well.
These types of lenders don’t do credit scoring like the major high street lenders. They will look at your individual situation and make a decision based on the details.
Each credit reference agency has its own scoring system to indicate how likely you are to get credit. A 500 credit score is low, but it won’t necessarily mean you can’t get a mortgage. It’s more likely to be a question of finding a lender that won’t use credit scoring.
CCJs are quite common. They’re a sign that someone hasn’t repaid a debt and it’s gone to the County Court. Some lenders will accept CCJs, depending on the amount. Some high street lenders will take you on if the CCJ was more than four years ago and under £350; after all, you can get a CCJ for a parking ticket.
Defaults need to have been repaid at least four years ago, and of a relatively low amount if you’re approaching a High Street lender. Specialist lenders will decide based on the registration date. Normally, if you have no defaults registered in the last two years, you should be approved.
An IVA is like a mini-bankruptcy in the eyes of a lender. Essentially, it packages up all your debt into one arrangement, often lasting for about five years. These are serious, high levels of debt.
Most high street lenders will want the IVA to have been satisfied at least six years ago. But specialist lenders will consider an IVA satisfied for a minimum of 12 months.
The challenge for First Time Buyers is the deposit. You might see 5% deposit mortgages in the market, but these require a top notch credit rating.
A good solution for First Time Buyers is the Help to Buy scheme, which could take your 5% deposit up to 25% deposit. This applies to new build properties only.
Lenders will credit score you for a remortgage, so it’s the same process. But the equity in your property is your deposit and is generally larger than for a First Time Buyer, so it is usually easier to find a remortgage deal.
If you have had bad credit in the past and are thinking about getting a mortgage, speak to a broker. Remember that multiple applications with different lenders will be recorded on your credit history and could make your credit score worse. We know the lenders that are most likely to take you on and will compare all the details to recommend a suitable product.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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