It might not seem fair but even having a big deposit in place and a decent salary isn’t enough to guarantee you a mortgage. If you have a bad credit score then your application is likely to be refused.
The state of play
Banks and building societies are cautious about who they lend to, so they always check credit reports carefully to see if potential mortgage customers have defaulted on any debt payments in the past. They will also look for any County Court Judgments (CCJs) against you, or if you have ever filed for bankruptcy.
In any of these scenarios apply, the chances are you won’t be eligible for most mortgage deals – even if your financial problems occurred a long time ago.
Which mortgages am I eligible for?
There are some mortgages however, which are specifically designed for those whose credit history is far from perfect. These are often known as ‘sub-prime’ mortgages or ‘adverse credit’ mortgages, and are generally offered by lenders specialising in this market.
While they work in the same way as standard mortgages, insofar as you borrow a certain amount and then make monthly repayments over a set term, interest rates are unsurprisingly higher and you are likely to need a more sizeable deposit to put down.
Most lenders will require a deposit of at least 25% to 30% of the property value, compared to around 5% to 10% if you were applying for a standard mortgage.
Check your credit history
Before applying for any mortgage, you should always check your credit report carefully, to establish if there is any reason why your application could be refused. You can obtain a copy of your report from one of the major credit rating agencies, which include Experian, Equifax and CallCredit.
Remember that certain simple oversights, such as not being registered on the electoral roll, or failing to close down credit card accounts that you no longer use, can have a negative impact on your credit rating.
What else mortgage lenders need to know
As well as looking at your credit report, lenders will usually ask you to supply several other bits of information before they agree to offer you a mortgage.
They will want to see pay slips from your employer or typically three years’ accounts if you are self-employed and bank statements to see how you manage your account.
The lender will also ask what other debts you have, so you will need to disclose if you have any personal loans or credit cards. If possible, it’s a good idea to try to pay these down before applying for a mortgage, as this will demonstrate that you take a responsible approach to your finances.
Always try and pay any bills on time too, as late payments will again have a negative impact on your credit history.
Compare interest rates
When applying for any mortgage, whether you have a poor credit history or not, it is vital to compare as many deals as possible to ensure you find the right one to suit your needs. If you aren’t certain which mortgage to go for, then you should speak to a mortgage broker who can talk you through the available options.
Remember to factor in arrangement fees and any other charges, as these can have a significant impact on the overall cost of the mortgage too.