• What is Bad Credit?

  • Bad credit refers to a history of financial difficulties or negative marks on your credit report, such as:
    • Missed or late payments on loans or credit cards
    • Defaults on loans
    • CCJs (County Court Judgments) against you
    • Bankruptcy or insolvency
    • Having an IVA (Individual Voluntary Arrangement)
  • These factors lower your credit score, making you appear as a riskier borrower to lenders.

How Bad Credit Mortgages Work

• Higher Interest Rates: Lenders will charge higher interest rates to offset the risk of lending to someone with poor credit. The worse your credit history, the higher the rate you’re likely to be offered.
• Larger Deposits: Bad credit mortgage lenders typically require a larger deposit, usually around 15% to 30% of the property’s value. This reduces their risk in case you default on payments.
• Limited Product Choices: The range of mortgage products available to you may be limited, as not all lenders are willing to offer bad credit mortgages.

How to Qualify

• Assessing Your Credit History: Lenders will review your credit report to assess the level of risk. They may still offer a mortgage even if you have bad credit, but it depends on how recent and severe the issues are.
• Affordability Checks: Even with bad credit, lenders will check your income, expenses, and overall ability to afford monthly payments. Proving steady income and financial stability can improve your chances.
• Rebuilding Credit: Some people improve their credit rating over time and then remortgage onto better deals. You can improve your credit score by repaying existing debt on time, reducing credit balances, and avoiding new credit applications.

Types of Bad Credit Mortgages

• Fixed-Rate: You pay a fixed interest rate for a set term (e.g., 2, 3, or 5 years), giving you predictable monthly payments, but often at a higher rate.
• Variable-Rate: The interest rate can fluctuate, meaning your monthly payments may go up or down. These are riskier because they are subject to changes in market rates.
• Tracker Mortgages: The interest rate is set to track the Bank of England base rate plus a margin, meaning your payments could change depending on that rate.