Bad Credit Mortgage Lenders

  • Missed or late payments
  • Debt management plan
  • Discharged bankruptcy
  • Defaults, CCJs or IVAs

Bad Credit Mortgage Lenders

  • Missed or late payments
  • Debt management plan
  • Discharged bankruptcy
  • Defaults, CCJs or IVAs
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Author: Carl Shave - CEO and co-founder
Last updated: July 8th, 2022

The kind of lenders that will typically be willing to extend a mortgage to a borrower with bad credit are usually the specialist niche-market lending companies. While still operating under the same rules and regulations as the mainstream providers, so your rights and your home are no less protected, they use far more flexible criteria, consider all kinds of situations and adopt a realistic approach to each applicant’s case.

How does a mortgage lender for bad credit work?

Whilst many mainstream lenders will either have no set rules for dealing with applicants with bad credit (or in fact just one criteria, which rules them out entirely), or will only accept applications for a very restricted range of products, a bad credit mortgage lender will be quite open and detailed about what they are willing to accept. They are likely to spell out types of adverse credit events they will take into account, as well as the amounts involved and the time frames they occurred. An experienced bad credit mortgage broker will be able to use their expertise and knowledge to match the potential borrower to the suitable lenders for their case.

Finding the best suited mortgage is difficult at the best of times but when factoring in a history of bad credit the task can appear even more daunting.  So who are the best lenders?  This perhaps depends on how we are to define the word best.  Ultimately it really comes down to who can offer you the mortgage you require, and from those available who has the most appropriate scheme for you when you need to apply.

Many bad credit mortgage lenders will be set up specifically to provide mortgages in this sector and as such their criteria will be best placed to deal with this type of business however, this does not mean you should automatically discount your typical high street lenders.  Some high street mortgage lenders offer bad credit mortgages and should not be ignored straight away.  It is usual that they will only consider what is deemed to be light adverse credit issues but a good mortgage broker should be able to ascertain your likely chances of success down this route.

The mortgage industry is still feeling the scars from the 2008 world-wide financial crisis that led to most lenders heavily restricting the availability of their products to only borrowers with perfectly clean credit histories and larger deposits or a low loan-to-value ratio (if they already had significant equity in their current property), giving providers the most security on the loan as possible.

As a result, a large sector of homebuyers found it increasingly difficult to obtain home loans, especially those with bad credit. This led to the growth of bad credit mortgage lenders in the UK entering the market, including bad credit mortgage lenders who cater specifically to those who have experienced financial difficulties in the past. Due to the very nature of their business, their criteria for applicants and interest rates are tailored to this sector of the market.

Many people discover that they may require the services of a bad credit mortgage lender when they have been declined by a high street provider and at times this includes their own bank.  But what makes a lender say yes or no.  Many lenders use a credit scoring system that they will have designed themselves and will be unique to their business.  Therefore, each lender will give you a score based purely on their judgement and not that of any credit reference agency.  When a credit score is carried out it takes your whole situation into consideration, however your credit history forms a large part of this.  The credit score is predominantly the initial check a lender will make before proceeding with your full application however, before you even get to this point you need to ascertain if you fulfil their standard criteria.  If this is not met, even if you pass their credit score you will still be declined.  So how do you know if you specifically need one of the specialist mortgage lenders for a bad credit history.  All lenders will say they will consider you for a mortgage however, historically it has been proven that unless you have a clean credit background or you have what is defined as light adverse eg normally more historic events or small defaults, you will likely need a bad credit lender.  Having a copy of your credit file will be very useful at the time of looking into your mortgage options as it will enable you or your broker to see which lenders criteria you will meet.  We therefore always recommend you obtain this.

 

Typically the interest rate you pay when using a bad credit mortgage lender will be higher than that which you would obtain with a high street bank.  So of course it stands to reason that you would like to be paying at this higher amount for as little time as possible.  With the right planning this can then hopefully be achieved.

Simply paying your mortgage on time will not automatically mean you will be able to switch to a more competitive rate in the future but it will certainly go a long way to showing your ability to service this loan.  To get yourself with a mainstream lender you do still need to ensure that you continually improve your credit rating.  If you can demonstrate that you have paid your mortgage on time every month and maintained your other credit payments, a lender will take this into consideration when assessing you in the future.  With good planning, a little luck and as we recommend, with a good mortgage broker to assist, you will be able to change your mortgage to a more favourable scheme during its lifetime.

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