Navigating Adverse Credit: Your Guide to Getting a Mortgage

Securing a mortgage in the UK is often a big milestone in one's life, whether it's for purchasing your first home, refinancing your current property, or investing in an HMO property (House in Multiple Occupation). However, the path to mortgage approval can become somewhat challenging if you have adverse credit. Here, we will explore what adverse credit is, and if you can still get a mortgage with a bad credit history whether you’re an individual or purchasing through a Limited Company.

What is Adverse Credit?

Adverse credit, also known as bad credit, is a term used to describe someone’s financial history that includes instances of missed or late payments, defaults, County Court Judgments (CCJs), individual voluntary arrangements (IVAs), or bankruptcy. It is essentially a red flag for potential lenders, signalling that you might be a higher-risk borrower. 

Your credit history is collated together in a credit report by credit reference agencies such as Experian, Equifax, and TransUnion. These agencies maintain these reports, which lenders then use to assess your creditworthiness. But don’t worry, it is still possible to obtain a mortgage even if you have had some financial problems in the past, read on to find out what you can do to improve your situation.

Can I Get a Mortgage with a Bad Credit History?

While having bad credit can make securing a mortgage more challenging, it doesn't necessarily mean that it's impossible. Lenders have varying criteria for risk, and some are more willing to work with borrowers with less-than-perfect credit. Here are a few key points to consider if you have a bad credit history:

• Work on Improving Your Credit Score:

Before applying for a mortgage, focus on improving your credit score. This might involve paying off outstanding debts, ensuring you’re paying bills on time, and rectifying any errors on your credit report. It can sometimes take several months before you see a notable increase in your credit score, but most credit checkers will be able to provide you with insights as to which areas will offer the most improvement.

• Seek Specialist Lenders:

Mainstream lenders are generally less accommodating when it comes to adverse credit. You may have better luck with specialist mortgage lenders who are experienced in dealing with borrowers in your situation.

• Expect Higher Interest Rates:

Be prepared for the possibility of higher interest rates if you have adverse credit. Lenders may view you as a higher risk, which can result in a higher cost of borrowing.

• Larger Deposit:

Lenders may be more willing to work with you if you can provide a larger upfront deposit, which reduces the overall risk to them. Most mortgage lenders ask for a 10% deposit towards the value of the property for property, for mortgages where you are going to reside at the property, but if you can aim for 15-20% this greatly improves your chances of securing a mortgage.  Buy-to-Let mortgages, the deposits generally  start from 25% and usually the bigger the deposit percentage contribution, the cheaper the rate

• Mortgage Broker Assistance:

Enlisting the help of a mortgage broker such as Vincent Burch, who specialises in adverse credit cases is highly beneficial. They can match you with lenders who are more likely to approve your application.

How to Remortgage Your Home with Bad Credit

If you're looking to remortgage your home with bad credit, the process can be somewhat more complicated than obtaining your initial mortgage. However, it's not impossible, and there are steps you can take to improve your chances:

• Assess Your Current Financial Situation:

Firstly, you need to understand the severity of your existing bad credit. Gather all your financial documents and assess your income, expenses, and debts. Having a clear understanding of your financial situation going forward will help you determine which lenders may be willing to work with you.

• Work on Your Credit:

As with your initial mortgage, if your credit still isn’t in the best shape take further steps to improve your credit score. Pay off outstanding debts, ensure all your bills are paid on time, and rectify any inaccuracies in your credit report.

• Consult a Mortgage Broker:

A mortgage broker experienced in adverse credit cases can be invaluable. They can analyse your financial situation and credit history and recommend lenders who may be open to considering your application.

• Be Transparent:

When applying for a remortgage, be honest and upfront about your credit history and evidence that you are working to rectify it. Lenders may appreciate your transparency and willingness to address the issues.

Can I Get an HMO Mortgage with Adverse Credit?

Obtaining an HMO mortgage with adverse credit can be more challenging than a standard residential mortgage, as HMOs are considered higher-risk investments. Here are some considerations if you're looking to secure an HMO mortgage with adverse credit:

• Specialist HMO Lenders:

Seek out specialist HMO lenders who are experienced in working with investors who have adverse credit as they may have more flexible criteria.

• Higher Deposit:

Be prepared to provide a larger deposit, which can reduce the lender's perceived risk. Having a higher deposit upfront can make you a more attractive borrower.

• Experienced Mortgage Broker:

Speaking to a mortgage broker with expertise in HMOs and adverse credit cases is essential as they can navigate the complexities of HMO lending and match you with the right lender.

• Prove Rental Income:

Emphasise the potential rental income from the HMO property, as this can offset the perceived risk of adverse credit. For example, if your mortgage payments are £1000 per month, but you can evidence that you will receive £2000 per month on the rental income, this may work in your favour. 

Can I Get a Mortgage Through My Limited Company If I Have Bad Credit?

Mortgages through Limited Companies, also known as Buy to Let Limited Company Mortgages, have become increasingly popular among property investors. If you have adverse credit and are considering this option, here's what you should know:

• Limited Company Structure:

When applying for a mortgage through your Limited Company, the lender primarily assesses the company's creditworthiness rather than your own personal credit. Having a Limited Company with a solid financial track record can work in your favour.

• Specialised Limited Company Lenders:

Seek out lenders who offer mortgages to Limited Companies; these lenders may have more lenient criteria, especially for established companies with strong financial records.

• Demonstrate Financial Stability:

Ensure that your Limited Company's finances are in good order and that you are up to date on all payments/invoices. Lenders will want to see that the company is generating income and managing its expenses effectively.

• Mortgage Broker Expertise:

Just as with HMO mortgages, having an experienced mortgage broker is crucial. They can guide you through the process and identify lenders that may be more amenable to your situation.

Securing a mortgage with adverse credit may be more challenging, but it's far from impossible. By ensuring that you are actively working on improving your creditworthiness, you can increase your chances of obtaining the mortgage you need. 

Whether you're looking to purchase a new home, remortgage your current property, or invest in an HMO, there are options available to help you achieve your property goals despite adverse credit.

How can Vincent Burch Mortgage Services help?

As an independent mortgage broker, we have access to specialist adverse credit mortgage lenders offering you choices, whatever your financial requirements. Our team of experts have over 200 years of combined specialist experience and provides a personal, professional service throughout.

Whether you’re a first-time buyer or an experienced landlord, we can help simplify the process and match the right mortgage for your needs. For valuable market insight and to help secure your mortgage, call our experts on 01603 851534 or email [email protected].