6 practical steps that could help you secure a mortgage with an adverse credit history

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A poor credit history doesn’t necessarily mean you’ll never be able to take out a mortgage, but it can make the process more complicated.

If you’re worried about negative factors on your credit report, you’re not alone. According to a report in MoneyAge, an estimated 900,000 people who have experienced adverse credit intend to buy a property in 2024. However, 84% acknowledged the current economic climate will make it harder for them to secure a mortgage.

In the UK, around 15.6 million people have some history of adverse credit, such as:

  • Missed credit payments
  • Defaults
  • County court judgements (CCJ)
  • Unsecured arrears
  • Entering a debt management plan.

An adverse credit history could affect the outcome of your mortgage application

When lenders review your mortgage application, they’ll consider how likely you are to default on the repayments. They’ll also assess how you’d cope financially if the cost of borrowing increased.

As a result, if you have negative factors within your credit history, mortgage providers may reject your application or offer less favourable terms to offset the perceived risk. That doesn’t mean you need to give up on your home ownership plans. There may be steps you can take to improve your chances of securing a mortgage, including these six.

1. Save a higher deposit

Traditionally, homebuyers have put down a minimum 5–10% deposit when buying a home. If you can, saving up more than this could put you in a better position as you’ll pose less risk to lenders.

In addition, a larger deposit could save you money in the long run. A larger deposit could mean you fall into a lower loan-to-value ratio band, which usually means you benefit from a lower interest rate.

2. Take some time to review your credit report

Lenders will use your credit report when assessing your application. So, it’s worth reviewing the information that it contains before you apply for a mortgage.

One of the first things to do is make sure the details are accurate. Simple mistakes, like an incorrect address, could cause delays or even mean you don’t receive a mortgage offer.

Then, look at what you can do to improve your report. Closing old accounts or reducing debt could put you in a better position when you approach a lender.

Keep in mind it can take several months for changes to show up on your credit report, so it’s a task worth doing sooner rather than later.

3. Think about your timing

A lot of factors will dictate when you’re ready to apply for a mortgage, from your personal circumstances to finding the right property. However, it’s worth checking when adverse credit history occurred if you’re applying for a mortgage.

Some negative factors will be removed from your credit report after a set time has passed. A missed payment may be removed from your report after seven years, while a CCJ won’t be visible to lenders after six years. So, if you’re nearing the point when adverse factors will be removed, biding your time could mean you have more options when searching for a mortgage.

4. Be prepared to pay a higher interest rate

If your mortgage application is accepted, a lender may offset some of the risk by offering you a higher interest rate. This means your monthly repayments and the total cost of borrowing will be higher.

Reviewing your budget beforehand and deciding what outgoings you’re comfortable with can help you make a decision that’s right for you.

5. Consider if a guarantor mortgage may be an option

A guarantor mortgage means someone you know would pay your mortgage repayments if you can’t for any reason. As the guarantor will be taking on part of the risk of lending to you, lenders may be more willing to approve your application even if you have a poor credit history.

Usually, a guarantor would be a close relative or friend. Typically, they’ll also need to own their own home, which would be used as security, and may need to prove their income.

It’s important that a guarantor understands the responsibility they’d be taking on. It may be a good idea for them to speak to a mortgage broker or seek legal advice so they can make an informed decision.

6. Work with a mortgage broker

There are lots of mortgage providers to choose from, including specialist lenders who are more likely to approve applications from those who have an adverse credit history. If you don’t meet the criteria of one lender, it doesn’t mean you’re not suitable for another.

A mortgage broker can help you identify which providers are more likely to accept your application based on your circumstances and borrowing goals.

If you’d like to arrange a meeting to talk to us about your mortgage, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.