Help to Buy mortgage with Bad Credit

Last updated: May 12th, 2022

Check your Eligibility in Minutes All Credit Histories Considered Repair Your Credit History Defaults, CCJ’s or IVA’s Free advice.

Help to Buy mortgage with Bad Credit

Last updated: May 12th, 2022

Check your Eligibility in Minutes All Credit Histories Considered Repair Your Credit History Defaults, CCJ’s or IVA’s Free advice.

What is a Help to Buy mortgage?

The government’s Help To Buy scheme was designed to help people who would otherwise struggle to afford the initial investment on a new home by providing a loan of up to 20% of the property’s value (or up to 40% in London) interest-free for the first five years. With this, and a 5% deposit, you could now apply for a 75% (or 55% in London) loan-to-value mortgage, putting you in a far better position when approaching lenders.

To qualify for the government’s Help To Buy scheme, you can be either a first-time buyer or existing homeowner, the property in question must be a new-build home, you must be resident in the UK and planning to use it as your only residence, and the property purchase price should be under £600,000.

It’s important to note that while a mortgage lender will apply credit checks when assessing your application, these checks do not apply for the government Help To Buy equity loan itself. How, then, does having a bad credit history affect your chances of getting a Help To Buy mortgage? In the following sections, we go over the facts.

Request a call back

Can I get a Help to Buy mortgage with bad credit?

In the past, if you had certain bad credit issues, you may have also had problems trying to access the government’s Help To Buy scheme in order to purchase a new home. However, Recent changes to the Help To Buy scheme have made it more accessible to customers with a less than perfect credit history. People can now be accepted for Help To Buy mortgages if:

  • They have been discharged from a bankruptcy for a year

Once a bankruptcy is discharged, it is viewed that there are no more claims against you from the previous debts, and the year’s grace period allows you to show a new history of responsible borrowing and repayments.

  • They have a current IVA

As this is a voluntary arrangement, and not a legal ruling, your capacity for other borrowing is not restricted – although you will need to establish that the mortgage repayments will be affordable to you on top of your debt repayments through the IVA.

  • They have no mortgage arrears in the past 12 months

A year is the period of time viewed as evidence that you are now on a firmer financial footing and thus able to service the new loan or mortgage, even if you had arrears previous to this.

In these cases, where an adverse credit event was comparatively recent, it’s common for customers to be expected to put down a 10% deposit on the property they are looking to buy, rather than the typical 5%. Aside from the added security for the lender, this will show a commitment to the mortgage and act as proof of an applicant’s ability to set by a decent amount of money from their income to service their home purchase.

Can I get a Help to Buy equity loan if I have bad credit?

You might be put off by the official line that the Help To Buy equity loan scheme excludes ‘credit-impaired customers’. But behind that technical term lies the fact that if you are no longer ‘credit impaired’ (which could mean currently bankrupt, subject to a debt management plan or in another situation where your borrowing is restricted), then you are indeed able to access the government’s scheme to help people get a foot back on the property ladder.

If you have bad credit, there is legally nothing to stop you from getting a Help To Buy equity loan, but you may be subject to extra checks and assessments of your financial situation – your income, outgoings and any other existing commitments – in order to make sure you will be capable of paying back the loan over the course of time, just as with a mortgage.

Through the Help To Buy scheme, if you are able to provide a 5% deposit then the government can provide a loan of up to 20% of the property value (outside London), meaning you can approach a mortgage with perhaps 25% to put down on the property. For instance, if you want to buy a property worth £200,000, you’ll need a deposit of £10,000, and the government could supply £40,000, giving you £50,000 to secure the property. This puts you in a far better position with lenders.

The good news is that this equity loan is interest-free for the first five years, after which time interest will be charged at 1.75%, rising by 1% of that amount plus the inflation rate. The government equity loan must be repaid after 25 years, or earlier if you sell the home. If you sell the home, then you will need to also pay back any proportional share of the increased value or profit made on the sale, i.e. a 20% loan will require repayment plus 20% of the increase in property value.

Just Mortgage Brokers logo

Useful Links

About

Website by Focus.