To qualify as a first-time buyer, you must have never owned a home or a buy-to-let property before. If you’ve previously owned or inherited a property, you are not considered a first-time buyer. Additionally, if you already own a home but your partner doesn’t, you still won’t qualify for these mortgage schemes if you want to buy a new place together.
Buying your first home with Bad Credit is simple when you have the right people supporting you. Buying your first home is exciting! But if you have bad credit, getting a mortgage can seem daunting if you are not sure what to expect. Don’t worry, it’s still possible. We can help you find the right lender.
We understand the challenges of getting a mortgage with bad credit. Although fewer options are available, we work closely with all the lenders who specialise in helping people with less-than-perfect credit histories.
We strive to give you the best chance possible, so when you apply for a mortgage, we help you understand what lenders look for when assessing your credit history. Serious issues like IVAs (Individual Voluntary Arrangements), DMPs (Debt Management Plans), and Bankruptcy are more serious than missed or late payments.
Lenders will consider things like how much money was involved and how long ago the issues were recorded against you, whether the debt was incurred due to a significant life event, and what steps you have taken to regain control of your finances.
The more money you can raise for your deposit, the less you will need to borrow which is always a good thing, and having a bigger deposit is also likely to give you access to lower interest rates.
In any case, you will need at least 5% of the property price as your deposit. This means you will borrow 95% of the property’s value. However, only just having a 5% deposit means fewer lenders will be willing to consider your application unless your credit score is very high, or any bad credit registered and satisfied is over 3 years. The interest rates being offered will also be typically higher due to the increased risk to the lender.
We recommend trying to raise a minimum of 10% to 15% for your deposit as this will give you access to more lenders willing to consider your application.
If your credit issues are more significant, such as multiple CCJ’s, defaults or active DMP’s and IVA’s, a 20 to 30% deposit may be required if the adverse recorded against you was recent. Raising a bigger deposit also has advantages, as it will give you access to lower interest rates, even with Bad Credit.
Lenders base borrowing limits on their own Affordability Criteria, which can vary greatly from lender to lender, so this can be a bit of a minefield. A mortgage specialist can offer you the best advice on the amount that can be borrowed, what you need to do to purchase your first home and help match you with lenders who best meets your needs.
These six things will affect how much you can borrow (affordability):
In the UK, you can usually apply for a mortgage from age 18. However, some Bad Credit mortgage lenders might require you to be over 21.
As you get older, it can become more difficult to borrow money; this is because the term of the mortgage you can apply for will be shorter, making the monthly payments more expensive. Lenders will request that the mortgage would be fully repaid before your planned retirement age.
Most lenders will cap this at 70, although a few will allow the term to be extended to 80, provided your employment is not of a manual nature, such as bricklaying, and if you’re paying into a pension.
That said, some more niche lenders specialise in lending to would-be homeowners in later life – so don’t assume that a mortgage is out of reach if you are keen to become a first-time buyer in your twilight years, especially if you can prove you have strong retirement income.
One affordability criteria is always how much income will come into your household, so your lender will look at your annual income to decide how much you can borrow. This will include your basic salary from employment, overtime, bonuses, investment income, benefits, maintenance, and pension payments. They will want proof, too, so be prepared to provide wage slips, pension statements, benefit award letters, and a bank statement to confirm the monies have been received.
If you are self-employed, you will need to have been trading for 12 months minimum and will need to provide at 1 year’s tax calculation also known as SA302’s, with matching overviews or CIS vouchers if you’re a construction worker. If you are a limited company owner, then the lender may also request to see finalised company accounts to evidence the income is sustainable.
Your lender will look at your annual income to decide how much you can borrow. Most lenders will typically use an income multiple of 4.5 x your household income. For example, if you earn £50,000 per year, then the maximum mortgage you can apply for is £225,000 (subject to affordability). However, there are a few lenders that offer enhanced affordability and income multiples up to 6 x the household income for first-time buyers, or households with a higher income of £30,000 for a sole applicant and £50,000 for a joint application; this would potentially increase the amount you could borrow up to £300,000.
A credit search will be carried out, revealing your existing committed expenditure to the lender, so be ready to give details about your debts, like credit cards and loans. If you have student loans, this will also be factored in for affordability. The lender will look at all your debts and monthly outgoings to work out your debt-to-income (DTI) ratio, which shows how much debt you have compared to your income. A lower DTI means you have a better chance of your mortgage application being approved, as high levels of debt can hugely impact affordability.
In addition to assessing your committed finances, the lender will also want to assess your monthly lifestyle costs by looking at your bank statements to see how much you are spending on food shopping, utility bills, subscriptions, and memberships. The number of dependents you have can also play a big part in how much you can borrow.
Most lenders want to see that you can manage your finances responsibly. They will check your credit reports to see how your financial commitments have been managed over the past 6 years.
The three main credit agencies that lenders will use are Experian, Equifax, and TransUnion, each of which creates its own credit reports and scores for you. They calculate your score differently, but generally, if you’ve made all your payments on time and have no financial issues in the last six years, you will have a good credit rating.
You can sign up to see your credit score yourself, but please don’t waste your time on apps like Clearscore. They can be unreliable and aren’t a reference point that any lender in the UK will use. The credit report we recommend is Checkmyfile as it will hold records for all three of the main agencies under one report.
Lenders are looking for high credit scores, and if your credit report shows evidence of defaults, County Court Judgements (CCJs), Individual Voluntary Agreements (IVAs), Debt Management Plans, or Bankruptcy, your score will be much lower.
Each mortgage lender will assess your application differently. Some focus more on your annual income, while others mainly consider your credit score. If you’re worried that past financial mistakes might affect your chances of getting a mortgage, then get in touch before you start viewing properties so you can understand how much you can borrow and your chances of success.
If you are applying to a specialist Bad Credit Mortgage lender, then this could mean that the interest rates available to you are higher. This can also affect affordability and how much can be borrowed.
The interest rate you’ll be charged will vary based on several factors, including the type of bad credit you have and when the issues occurred. Mortgage lenders view bad credit as an indication that you might be a ‘high-risk’ borrower.
To reduce this risk, lenders often offer higher interest rates to individuals with credit issues, allowing them to secure a greater return. The interest rate can vary greatly among lenders, so it is essential that you find and work closely with a Bad Credit Mortgage Specialist so that they can understand your unique circumstances. That way they will pair you with the right lender so that you are not paying a higher interest rate than is necessary.
The higher your credit score, the easier it is to secure mortgage approval. Therefore, it’s wise to take steps to improve your score before applying, if possible. However, if you’re short on time and have a low credit score but need a mortgage quickly, it’s best to speak with a Bad Credit Mortgage Specialist (like us!) who can guide you on the best options.
Here are just a few of our top tips for improving your credit score as a first-time buyer with bad credit:
Yes, if you’re applying for a joint mortgage and one person has bad credit, the lender will consider both of your credit histories when reviewing the application and will focus more on the applicant with the worst credit profile.
Most lenders will combine your credit scores, and you’ll need to meet their minimum requirements to be eligible. If one of you has a strong credit rating, it can be beneficial.
Your application’s approval will depend on the seriousness of any issues on your credit report. Lenders will also consider how recent the issues were, the amount involved, and what steps have been taken to improve the situation. For example, bankruptcies and payday loans are viewed more negatively than occasional missed payments.
When it’s time to pick up the keys, we want you to feel completely confident in both your property choice and the lender who has financed it.
Our Bad Credit Mortgage Specialists are here to guide you through all your affordability options and find the best lender and product that fits your budget perfectly.
But our support doesn’t stop at finding the best deal. Our brokers and case handlers will manage the entire mortgage application process for you, answering any questions you have along the way. They’ll also stay in regular contact with your accountants, solicitors, surveyors, and everyone else involved to ensure everything stays on track for a smooth completion. Plus, you can reach out for a chat Monday to Friday, from 9 AM to 9 PM, allowing you to check in on your application status during evenings.
We’ve helped hundreds of first-time buyers with bad credit avoid the hassle and enjoy a seamless home-buying experience. Get in touch today to discover how we can assist you. You can contact us for free initial advice, and we’ll even provide you with a solid agreement in principle so you can start searching for your first home with confidence.
If you have questions about getting a mortgage with an adverse credit score, read our FAQs. Our wealth of knowledge within this market means that we’re confident in our ability to offer specialist mortgage advice and secure the mortgage you want regardless of your credit history.
Yes, even if you have bad credit, it is absolutely possible to get your first mortgage. Many specialist lenders will accept first time buyers with poor credit, depending on your income, the size of your deposit, and how recent your credit issues are.
Lenders may check for things like:
Not all lenders treat these issues the same, so having bad credit doesn’t automatically mean you’ll be declined.
