Whatever your personal situation, there may be a mortgage for you
For whatever reason – and there are many – you’ve got a bad credit score. If you let high street lenders have their way, it could make your life difficult, if not impossible. Especially when it comes to buying a home or remortgaging. (Read our article “How could a poor credit score affect your life?” for more info.)
In this article, you’ll learn about the top six lenders for people with a poor credit score.
What is a bad credit lender?
High street banks and building societies and mainstream lenders don’t like lending to people with bad credit. They think it’s too risky.
Bad credit lenders look beyond things like credit reports, to understand why you’ve got a bad credit score. For example, it may be that a one-off life event (such as a redundancy, injury, or illness) caused you temporary financial problems, and may have resulted in CCJs or default on a loan. For example, most of the lenders in our ‘best of’ list below will ignore defaults or CCJs that are more than two or three years old.
Are bad credit lenders safe?
A bad credit lender is regulated by the FCA just like high street lenders. They are bound by the rulebook to treat you fairly, in exactly the same way. So there’s no difference, except that a bad credit lender is more likely to say ‘yes’.
Do bad credit lenders lock you into higher interest rates?
If you’ve got bad credit and want a mortgage, you are likely to pay a higher interest rate – it’s one way that a lender protects against the risk of default. But, just as you can with any other mortgage, you can switch from the bad credit mortgage to a more favourable one when you are able.
It’s good practice to keep an eye on your improving credit score and keep in touch with your mortgage broker. They should advise you on whether switching to a cheaper mortgage is possible, and also if any early repayment charges exist that will make it too expensive to do so just yet.
Choose your bad credit mortgage lender wisely
It’s impossible to say which bad credit mortgage lender (or mortgage product) is best for you without understanding your unique situation and personal circumstances. However, in our experience, the following six lenders are among the best for homebuyers who have bad credit.
1. Magellan Homeloans
This is a great lender, which offers mortgages for a huge range of bad credit issues, including:
- Debt management plans
- Missed payments and defaults
If you have a life event reason for your credit blip, Magellan may be the lender for you. They also offer a mortgage range without early repayment penalties, so, as soon as your credit score improves, or your bad credit event drops off your credit file, you can switch to a cheaper mortgage elsewhere more easily.
On the downside, Magellan charge some of the highest arrangement fees on bottom-tier mortgages.
2. Aldermore Bank
Aldermore are well-respected in the specialist mortgage market and have recently increased their mortgage offering. They have some very unique selling points. For example, they are the only lender willing to consider 95% mortgages, combined with historic adverse credit or debt management plans. They also have some great rates and fee-free mortgages.
They offer mortgages in a wide range of adverse credit situations, though to get the highest loan-to-value ratios you will need to show that you:
- Have managed your finances well for three years
- Have no outstanding CCJs
- Have no more than one default in the last three years
The higher the deposit you can pay, the more relaxed their lending criteria becomes. For example, they will also consider bankruptcies and IVAs that have been satisfied for more than two years, providing you can pay a deposit of 25% or more.
3. Pepper Money
Pepper Money has an appetite for what they call ‘the interesting’. They offer both residential and buy-to-let mortgages to people with credit blips, little credit history, previous poor financial management, and self-employed.
They have some fantastic deals – especially if your credit blip is older than five years – and credit check instead of credit score. It’s a very civilised way of treating customers. We often find that this could be the best lender for first-time buyers with bad credit. Pepper Money charge a £195 non-refundable booking – if your mortgage application is declined, you won’t get this money back.
4. Precise Mortgages
Precise is the largest of the specialist mortgage lenders and offers some of the most competitive rates. Much of the specialist lending sector benchmark themselves against Precise Mortgages.
You will need a minimum 15% deposit, and the company credit checks as well as credit scores. This means it is possible that you may be moved down to a more expensive tier as they work through the application process. They receive a lot of good press about the quality of their customer service (always good to hear), and 95% of their customers surveyed said that they would recommend Precise to family and friends.
5. Bluestone Mortgages
Like all mortgage lenders, Bluestone has its own rules. However, Bluestone flexes its rules on a case-by-case basis. They want to understand why you have poor credit, and offer mortgages for many situations – including impaired credit because of CCJs and IVAs, bad credit because of a life event, complex income situations, and for those in self-employment and contractors.
They cater across a wide range of needs, including first-time buyers, remortgage, buy-to-let, and home movers. Another reason Bluestone is in our top six is the speed with which they can make a decision, often within a few days to a couple of weeks, providing you can post a deposit of 20% or more.
Kensington provide mortgages (up to 90% loan-to-value) for a wide range of reasons for bad credit scores. They ignore defaults logged on your credit file that have been caused by late payment of mobile phone bills, though their lending criteria is stricter in other situations.
Kensington is something of a halfway house between high street banks and specialist lenders. They won’t accept offer mortgages to those with defaults of CCJs in the last two to three years, and also tend to be more selective in the assessment process.
They can be slow to make a decision, though they may lend up to 90% of loan-to-value. They have a good mortgage product range (some of which are fee free) including no valuation costs.
How do you get a mortgage when you have bad credit?
If you’re really lucky and apply for a mortgage at the right time, a high street lender may be willing to entertain your application for a mortgage. The longer you leave it since a blip that caused your credit rating to crash, the better your chances.
However, each time you apply and get knocked back, it gets marked on your credit file. This makes it more difficult to get a mortgage. That’s one reason why you should use a mortgage broker if you’ve got bad credit and want a mortgage. A good specialist mortgage broker will check the major lenders for you, without a black mark going on your credit file.
Another reason for using a specialist mortgage broker is that they can approach specialist bad credit lenders that won’t deal directly with you. This improves your chances of getting a mortgage, and one that is best for you: different lenders specialise with different reasons for bad credit.
Any of the six bad credit lenders we’ve highlighted in this article may be the best lender for you. But it’s not an exhaustive list. Contact Mortgage Thoughts today, and let us help you. Whatever the reason for your bad credit score and your personal circumstances, we’ll work hard to find the best solution to your needs.