> Bad Credit Mortgage - UK Guide
In a nutshell
A bad credit mortgage can be taken out by consumers with poor credit histories who fail standard lender checks for creditworthiness.
Best Mortgage For
Consumers who will not qualify for standard mortgage products because of their credit history. This may be based on financial 'black-spots' on a credit rating such as debts, defaults, CCJs or arrears. Alternatively, it may also be down to other reasons that are not related to bad credit per se. For example, people who are self-employed or who have moved around a lot may be classified as bad credit risks because standard lenders can't get sufficient proof of income or creditworthiness to accept their applications.
This depends on the lender you choose. You can generally find any type of mortgage and all the standard deals within the bad credit sector. So, you should have no problem finding fixed rate, capped rate, discounted or tracker deals, for example. But, not all lenders will offer a full range of these deals for bad credit mortgages.
Typical Amount to borrow
The majority of bad credit lenders will offer the same borrowing limits as the rest of the mortgage industry (i.e. around 3+ times your annual salary if you are the sole mortgage holder or 2.5+ times your combined salaries if you are a couple). Some have extended their services to meet the needs of bad credit consumers and will offer more and some will put a cap on borrowings.
Many bad credit mortgages will need a higher deposit of up to 20% of your total borrowings. Nowadays, however, it's becoming increasingly common to find standard deposit rates of 5-10% and some will allow 100+% mortgages.
Even just a few years ago, people with bad credit and those that fell into the category because of their job or lifestyle would have found it well-nigh impossible to qualify for a mortgage. Nowadays, a bad credit mortgage can give a perfect solution for these consumers.
The fact that bad credit lenders specialise in working with people with bad credit means that you will get a higher level of understanding regarding your own circumstances and better rates than have been offered previously.
What to look out for
Check out how 'bad' your bad credit situation is before you choose a mortgage lender and do some comparisons before you decide which lender is right. Interest rates for bad credit mortgages will invariably be higher than those given for standard products but many bad credit lenders increase their percentages on a sliding scale according to how bad your situation is rather than just adding on a set percentage.
You might be asked to put down a higher deposit for this type of mortgage - this can rise to up to 20% of the sum you need to borrow. You might also find that you are tied into your deal for longer than you would have been with a standard mortgage product. It is possible to avoid both these issues by researching your options in detail.
If you're self-employed and having problems getting a standard deal then a self-consolidation mortgage might be better for you than a bad credit one. Some big name lenders are also becoming more flexible on bad credit applications now so it's worth doing a bit of research before you write them off as viable options.