For most people, owning your home means having to secure a mortgage. For those with a low credit rating, this is easier said than done. Bad credit mortgage brokers are a specific type of broker, specialising in helping people with low credit scores get access to an affordable mortgage product. This simple guide explains how bad credit can affect your mortgage prospects, and how specialist brokers can help.
FAQs
How do credit checks work?
Companies carry out credit checks to better understand your financial behaviour. They check how much debt you have, how you manage it and how well you repay it. Credit checks can also show if you are financially tied to someone (e.g. a spouse) and the level of their debt.
Credit checks can only be carried out by companies who have a legitimate reason to do so. This mostly means banks and other mortgage lenders, but landlords, letting agencies and sometimes even employers will also make credit checks.
What factors will give me a bad credit score?
A bad credit score is caused by managing your level of credit poorly. This can include running up high levels of debt, missing debt repayments, and holding county court judgements (CCJs) for debt.
How far back does a mortgage credit check go?
A mortgage credit check will usually only consider the last six years of your credit history. Lenders view this as a useful timeframe for deciding whether you are currently a high or low credit risk.
Because of this, if you have had trouble with debts in the past, it may not be as big a problem as you think. If the issue dates back more than six years, you may well still qualify for various mortgage options.
What is a bad credit mortgage?
There’s no such product as a ‘bad credit mortgage’, but there are mortgage brokers who can specialise in finding mortgage deals for buyers with poor credit ratings. Mortgages that bad credit brokers might be able to secure for you, if you have bad credit, might typically come with higher interest rates and lower limits on the amount you can borrow, compared to standard mortgage deals.
How are bad credit mortgage brokers different from normal brokers?
Bad credit mortgage brokers specialise in helping people with low credit scores get access to mortgages. Most traditional high street lenders make their mortgage offering decisions based almost entirely on a person’s credit score. Because of this, these people often find it difficult or impossible to get a mortgage in this way.
How can bad credit mortgage brokers help people with bad credit?
Bad credit mortgage brokers offer people with low credit scores specialist advice and help them to find a willing lender. They are trained to understand the many reasons why people may have bad credit and help to find them workable solutions.
A lot of bad credit mortgage brokers also build up good working relationships with specialist lenders. This means they have access to mortgage offers and rates that are not available on the high street.
Who is the best mortgage lender for bad credit?
Mortgage lenders change their mortgage rates and terms on a regular basis, so no one lender is automatically the best for you. Bad credit mortgages are a competitive market, so lenders frequently adjust their rates depending on many factors. The state of the economy, the lender’s own risk profile, what their competitors are doing – these can all influence their rates.
The important thing to remember is that new mortgage products and offers come onto the market regularly. This means that having bad credit doesn’t necessarily mean you can’t get a mortgage.
What kind of deposit do you need for a bad credit mortgage?
Although there’s no specific mortgage product for people with bad credit, brokers might be able to find you deals with mortgage providers who are prepared to lend you the money you need, with a few caveats. One of the main compromises of mortgages for people with bad credit may be the required deposit. Lenders might ask for a higher deposit than for a standard mortgage deal, such as 15% or 20%, rather than the usual 10%.
What are the benefits of using bad credit mortgage brokers?
The main benefit of using a bad credit mortgage broker is that they can help you secure a mortgage if you have bad credit. It’s likely to be a long and difficult process finding an affordable mortgage on your own if your credit is poor.
Another advantage to using bad mortgage brokers is that they can potentially save you money. Through their connections to specialist lenders, they might find you a better mortgage product with a lower interest rate. In addition, the best bad mortgage brokers have highly trained staff who are more familiar with bad credit issues than high street lenders.
What are the disadvantages of using bad credit mortgage brokers?
The main disadvantage to using any mortgage broker is that they will generally charge you fees for their services. Each brokering firm will have their own pricing structure, so make sure you understand it fully before signing with them. Currently, the average charge for fixed-fee brokers in the UK is £500.
However, some mortgage brokers charge a percentage of the value of the mortgage you take out. This could be a lot more than a fixed fee if the percentage charge is high.
Finally, some brokers operate on a ‘fee free’ basis. They don’t charge you, instead they make their money through commission earned from the mortgage lender. Provided that their advice is sound, this is the best kind of fee structure for you, because it costs you nothing.
Is it worth using bad credit mortgage brokers?
If you have a low credit score, and you don’t have enough time to improve it, using a bad credit mortgage broker may be a useful alternative to renting. At the very least, you can consult them before agreeing to anything, helping you better understand your options. If you decide to work with them, they can be extremely helpful in getting you a mortgage.
However, before you sign, make sure you are satisfied that your broker will deliver good service and charge reasonable fees. Reputable bad credit mortgage brokers are there to help you find better options when the traditional approach doesn’t work. Sadly, there are some bad actors out there, so do your research and never take anything for granted.
If you need help finding a path to homeownership, we have plenty of guides that can help. Check out our advice on the Shared Ownership and Help to Buy schemes.
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