What is an Adverse Credit Mortgage?
An adverse credit mortgage, also known as a bad credit mortgage, is a loan designed for individuals with an imperfect credit history. Lenders offering these mortgages evaluate applications based on your current financial stability, rather than focusing solely on past credit issues such as missed payments, defaults, or County Court Judgments (CCJs).
Key Features of Adverse Credit Mortgages
• Larger Deposit Requirements
Lenders may require deposits ranging from 15% to 30% of the property’s value. A larger deposit helps mitigate the perceived risk for the lender.
• Higher Interest Rates
Due to the higher risk, adverse credit mortgages typically come with higher interest rates compared to standard mortgages. Improving your credit score over time may help you refinance at a better rate.
• Flexible Lending Criteria
Specialist lenders often review applications on a case-by-case basis, taking into account your income, affordability, and current financial behavior.
• Tailored Options
There are mortgage products available for both residential purchases and investment properties, including adverse credit buy-to-let mortgages.
Securing a Mortgage with Adverse Credit
If you’re applying for a mortgage with bad credit, preparation is essential. Here’s how to enhance your chances:
• Check Your Credit Report
Obtain your credit report from agencies like Experian or Equifax to identify and resolve any inaccuracies promptly.
• Improve Your Credit Score
Pay bills, including credit cards and utilities, on time.
Register on the electoral roll to improve your credit rating.
Avoid taking on new debt before applying.
• Save for a Larger Deposit
A larger deposit lowers the lender’s risk and increases your chances of approval.
• Work with a Mortgage Broker
A broker who specialises in adverse credit can connect you with lenders who understand your situation.
Buy-to-Let Mortgages for Adverse Credit
Investors with adverse credit can still secure buy-to-let mortgages, but these require thoughtful planning:
• Rental Income Assessment
Lenders assess affordability based on the expected rental income, often requiring it to exceed the monthly mortgage payment by a specific percentage.
• Deposit Size
Buy-to-let mortgages typically require a larger deposit, often starting at 25%.
• Property Considerations
Some lenders may have restrictions on which types of properties qualify for buy-to-let mortgages.
• Specialist Lenders
While many high-street lenders may not consider adverse credit applicants, specialist lenders offer tailored solutions.
How to Apply for an Adverse Credit Mortgage
• Prepare Your Finances
Review your credit history and resolve any outstanding issues.
Save for a deposit to strengthen your application.
• Seek Professional Advice
Work with a mortgage broker who specialises in adverse credit to guide you through the process.
• Submit a Mortgage Application
Provide necessary documentation, such as proof of income, credit history, and ID. Be ready to explain any past credit issues.
• Consider Long-Term Goals
Plan an exit strategy to refinance to more favourable terms once your credit improves.
Advantages of Adverse Credit Mortgages
• Access to Homeownership
An adverse credit mortgage opens doors for those who might otherwise find it difficult to get approved.
• Specialist Support
Lenders and brokers experienced in adverse credit offer tailored advice and mortgage options.
• Path to Better Rates
As your credit score improves over time, you may be able to refinance at more competitive rates.
FAQs About Adverse Credit Mortgages
Can I get a mortgage if I’ve been bankrupt?
Yes, though lenders will assess how long ago the bankruptcy occurred and your financial recovery since then. A larger deposit may be required.
How much deposit do I need?
For adverse credit mortgages, deposits typically range from 15% to 30%.
Can rental income be used to secure a buy-to-let mortgage?
Yes, lenders consider expected rental income, often requiring it to cover 125%-145% of the mortgage payments.
Will my credit score impact interest rates?
Yes, but preparing strong documentation and showing financial stability can help secure better terms.
Are there fees for using a mortgage broker?
Some brokers charge fees, while others are free. Always clarify costs upfront.
Why Choose Compare the Mortgage?
At Compare the Mortgage, we specialise in assisting individuals with adverse credit to secure the right mortgage. Here’s how we can help:
Expert Guidance
Personalised advice for residential and buy-to-let mortgages.
Wide Lender Network
Connect with specialist lenders who are experienced in handling adverse credit.
Transparent Process
Transparent communication with no hidden surprises.
Competitive Rates
Assist you in securing the best terms for your circumstances.
Embark on Your Mortgage Journey Today
Securing a mortgage with adverse credit is achievable. Contact Compare the Mortgage to explore your options for adverse credit mortgages, buy-to-let investments, or refinancing. Let us assist you in taking the next step toward achieving your property goals.