If you’re one of the 4 million people who checked their credit score for the first time during the pandemic, it might not have made for happy reading. Recent research suggests that over 6 million UK adults has experienced problems with adverse credit over the past 3 years.

Mortgages

Mortgages

Problems such as missing payments, defaults or CCJs, which appear on your credit report and can make it more difficult to access credit in the future. In particular, a poor credit score can make finding a mortgage challenging. This is because a poor credit history is seen by lenders as an indication that you are a high risk. So, what can you do if you need to get a bad credit mortgage?

First things first, there is really no such thing as a ‘bad credit mortgage’. What there are, are lenders who are more willing to approve applications from people who have had credit problems in the past. Some of these are specialist lenders, but even if your credit history is poor, you may also be able to find a mortgage with a high street lender. The key to success is to approach your application intelligently and don’t do anything that could make your situation worse.

Assess your situation

Before you start your property search have a good hard look at your current financial situation. Do you understand why your credit score is so poor? If so, have you addressed the problems you’ve had in the past?

While we often have to move home for circumstances beyond our control, you should ensure that where possible you are in the best financial health before you consider entering into a mortgage agreement. Take time to honestly take stock of your income and outgoings. Consider how secure your employment is. Only once you are confident that you will be able to manage a mortgage, should you consider moving forward with a house purchase.

Speak to a professional

A mortgage broker specialising in applications from people with a history of adverse credit will be able to help you get the best deal available. Bad and adverse credit mortgage brokers develop constructive relationships with lenders, which gives them an insight into the criteria that lenders are applying.

This is valuable, as lenders criteria don’t just differ between them, they also change over time. Using a broker who is up to date with what lenders are looking for can give you the edge. In addition, some deals are ‘broker-only’ meaning that you won’t find them if you are applying independently.

If you do decide to use a broker, look for one that describes themselves as ‘whole-of-market’, as this will give you access to the widest range of deals.

Be honest

You’ve been honest with yourself, and now is the time to continue that honesty with your broker and with any prospective lenders. Don’t try and cover up why your credit score is poot or why you got into financial trouble. The more your broker knows the more they will be able to help you.

Dishonesty on a mortgage application is generally discovered as lenders and underwriters will thoroughly check the details you have given. You are very unlikely to get a mortgage in this scenario.

In the worst case, lying on a mortgage application could result in a conviction for fraud. So be upfront.

Start to repair the damage

If you have some time before you are intending to buy, you can start to repair your credit file. There are some very simple initial steps you can take such as ensuring that you are registered to vote and making sure your name is on all household bills – assuming of course that you are paying them on time.

You can also request a copy of your credit file and make sure that the information is accurate, as well as removing any financial associations that are no longer current. Financial associations are people with whom you have had a financial relationship, usually an ex-partner. If the financial relationship has ended, you can have this removed from your credit file.

Counterintuitively, you may improve your credit score by getting a credit card -if you don’t already have one and you can afford it. This is because lenders will see a well-maintained credit arrangement as evidence of financial stability.

Get your paperwork in order

Payslips, bank statements etc. Make sure that you have all the paperwork you need to complete your application accurately, and support your application.

If you are self-employed make sure your accounts are up to date. Ideally ask an accountant to sign your accounts off, as this is viewed more favourably by lenders.

Maintain financial stability

Once you’ve made an application you should try and maintain as much financial stability as possible. If you’re an employee, avoid changing your job, drastically changing your employment pattern or moving into self-employment. All these may set your application back.

Also avoid taking short-term, so called ‘payday’, loans. These are a red flag to lenders as they suggest that you are unable to manage your money responsibly. If you do need a short-term loan, it is far better to approach your bank for an extension on your overdraft or consider using a credit card – with the usual caveat that doing so is manageable.

If your finances have taken a hit during the pandemic and you’ve got into financial trouble, this doesn’t mean that you will have to abandon any hope of moving to a new home. With professional help, and some planning there are mortgage out there, particularly if you are able to maximise your deposit. Just follow our tips and use the resources below to take one more step back to normality.

Resources and help

 

 

Tagged in