Good credit history is a critical success factor in the UK mortgage application process. It doesn’t necessarily mean that applicants cannot apply for a mortgage with bad credit history. However, it is important to approach the suitable mortgage adviser and the lender. Most lenders in the UK would decline mortgage applications with bad credit. Therefore, applicants should connect with an experienced adviser to find a suitable lender.
What type of lenders would consider a mortgage with bad credit?
UK mortgage industry consists of different types of financial providers such as high-street banks, buildings societies, and specialist lenders. If an applicant has credit issues, specialist lenders might be the go-to option. The specialist lenders also have specific criteria in terms of bad credit mortgages.
For example, if you have recorded a County Court Judgement (CCJ) within the last 6 months/12 months/24 months/36 months different lenders would have their criteria to determine mortgage eligibility. Further, they will consider the time taken for settlement and other related credit issues.
An experienced mortgage adviser would always know, which bank to approach based on the type of credit issue. On the other hand, if an applicant applies to the wrong bank and gets declined, it would be difficult to apply again even with the correct lender due to the recent mortgage decline and credit check.
There are lenders who understand your circumstances
Applicants find it difficult to apply for a mortgage due to low income and credit issues caused by the COVID-19 pandemic. When the income is affected, people struggle to maintain their monthly credit commitments and other committed expenditure. It becomes a nightmare to pay the mortgage along with other credit card bills.
There are few remedies available such as mortgage payment holiday, furlough scheme and covid self-employed grant, etc. Still, people find it difficult to manage their credit commitments and end up having credit issues. The credit issues such as credit card miss payments, utility bill arrears, secured/unsecured personal loan defaults could the credit score.
On a positive note, there are lenders who understand the above difficulties which have risen along with the pandemic. Few Buildings societies and other specialist lenders who are funded by their members specialize in lending to applicants with poor credit.
Do I need to pay a higher interest rate?
The specialist lenders who are accepting applicants with a bad credit history are generally charging higher interest rates. The reason is that they accept a higher risk than the standard mortgage providers. An applicant with credit issues has the potential to miss mortgage payments and there is more risk of the property being repossessed if it happens.
On the other hand, a qualified mortgage adviser would compare all the available options in the market and recommend the cheapest options. The applicants must meet the eligibility criteria for bad credit and the loan amount affordability as well.
Do bad credit mortgage lenders charge higher product fees?
Most fixed deal mortgages come with a product fee. Bad credit mortgage lenders charge higher fees compared to standard mortgage providers. Further, there could be application fees for bad credit mortgages. This is because the underwriting process and case assessment are complex due to the nature of the applicants.
When there is adverse credit, lenders are focused on assessing the full financial profile of the applicant. It could go up to the extent of analyzing each transaction or fund transfer on the applicants’ bank statements. Further lenders might ask for additional proof of income and a source of deposit for validation.
It means that bad credit mortgages require more admin work compared to standard mortgages. It results in most lenders charging an admin fee to process the application. There are instances where applicants submit the full mortgage application and once the lender has completed the initial assessment, applicants change their minds. It has prompted lenders to charge up-front application fees to increase work management efficiency.
Things you should not do if you have bad credit
If someone is well aware of the type of adverse credit they got, applicants should be mindful of several things. Applicants should not blindly go to a lender and submit a mortgage application. As the lender is doing a credit check on the applicants’ credit file, it would further reduce the credit score.
Any hard credit check or multiple soft credit checks would have a significant impact on mortgage applicants’ credit files. Therefore, applicants should consult an experienced mortgage adviser before applying for a bad credit mortgage.
What happens if my mortgage application gets declined?
If an applicant with bad credit has submitted a mortgage application and got declined, they could still look for other options. However, the lenders have an internal system to update records and the new lender might consider the recent decline before making their decision.
Therefore, if you have applied for a mortgage and got declined due to credit issues, it is advisable to speak to a mortgage adviser who specializes in the bad credit mortgage segment. The mortgage adviser would be able to find the suitable option as they have access to various lenders.
Overall, it is a common misconception that people think they can’t apply for a mortgage in the UK if they don’t have a good credit history. Now, the time has changed and independent mortgage advisers are capable of finding suitable lenders for applicants with credit issues.
Therefore, even if you have recent credit issues, stop worrying and consult an experienced mortgage adviser who knows how to find a mortgage for applicants with adverse credit.
As a mortgage is secured against your home, it could be repossessed if you do not keep up with the mortgage repayments
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