Bad credit mortgages are among the most frequent enquiries we receive from residential clients here at Revolution Brokers.
There are many factors to applying for a mortgage with credit issues, including knowing which lenders to apply to and understanding the right kind of bad credit mortgage that will suit your needs.
In this guide, we explain how a stable employment income will help mitigate the perceived risk of a bad credit mortgage applicant and some of the ways you can streamline the process to improve your chances of approval.
Have Your Finances Organised Before You Apply for a Bad Credit Mortgage
The first step is to look into your finances carefully.
Hoping that you'll be approved without having clarified exactly what sort of issues are showing on your credit report isn't a great option.
It's highly stressful and can worsen the problem if you apply to inappropriate lenders and rack up more hard credit searches.
- Accessing a copy of your credit report from all of the major bureaus. They use different scoring metrics, and one agency might be up to date whereas another isn't, so it's worth downloading them all to be certain.
- Checking all of the issues, including late payments and defaults, querying any errors and ensuring your report is consistent with your records.
- Knowing what your credit score is and what it means. Again, each credit scoring agency uses a variable scoring rate, so it's important to check what that figure means - i.e. good, stable or poor.
Once you know how your credit report looks, you'll be in a good place to start thinking about the type of bad credit mortgage you need.
Managing Your Income Before Applying for a Bad Credit Mortgage
If you have a regular income and meet the affordability requirements for the mortgage brokers value you're after, you are in a firm position.
While historical bad credit may still influence which lenders are likely to accept your application, an experienced broker will advise on things like:
- How many multiples of your salary you're likely to be able to borrow.
- Calculating a debt to income ratio to account for other liabilities.
- Collating documents to prove your income streams if you have other rental income or a self-employed role.
- The paperwork a lender will ask to see to confirm your annual earnings - things like payslips, P60s, tax returns and bank accounts.
The key information a bad credit mortgage lender will look at includes your surplus monthly earnings and whether you're likely to continue to earn the same salary - or higher - in the next couple of years.
Another good task is to look at whether you have opportunities to minimise your debts.
Of course, it might not be possible to repay everything immediately, but closing any unused credit card accounts, paying down small amounts of borrowing and streamlining your credit report can improve your mortgage approval prospects.
Around 35% of your credit report comes from overdue credit card payments and similar outgoings. Therefore, taking some time to get your finances in good standing will support your mortgage application, even if you have older bad credit issues on your file.
Applying for a Bad Credit Mortgage UK
The final stage is to consult an independent broker armed with clear information about your credit history and income to assess which mortgage products are most suitable.
If you already know which property you want to buy and the sale price, this can be the benchmark we'd use to evaluate the most appropriate lenders and what sort of bad credit mortgage deal we'd be able to negotiate.
There are also ways to mitigate the risk of bad credit problems, such as:
- Offering a higher deposit value.
- Providing additional security or a guarantor.
- Borrowing a lower mortgage value.
- Extending the term, so the affordability criteria are easier to meet.
- Adding context about why the bad credit occurred.
Some specialist lenders are more flexible about bad credit, so if the situation happened because of a one-off unavoidable event, such as redundancy or a relationship separation, they're more likely to overlook this.
Showing that you've now made good on your debts and remained in good standing with your lenders in the interim is often sufficient to minimise the impact of bad credit, especially if it happened several years ago.
It's also worth remembering that credit issues disappear from your report after six years, so if you're approaching this date, you might achieve a far more competitive mortgage interest rate if you wait a little longer.
However, high street banks and mainstream lenders are often bound by more rigid policies. They can't usually make a lending offer if any bad credit on your report exceeds their criteria.
For more information about bad credit mortgages, supporting your application with income evidence, or negotiating affordable interest rates, please contact Revolution Brokers on 0330 304 3040 or at [email protected]