A bad credit score can be a devastating blow to someone with the dream of one day owning his or her own home, because mortgage lenders usually require the applicant to have a positive credit report. Anyone who has made some bad financial decisions in the past or was unable to keep certain commitments could find their credit rating is negative; anyone who has missed a payment or made it late, anyone with a debt management plan, or anyone with a discharged bankruptcy can also have a bad credit rating.
Luckily, there are still ways to get a mortgage even if you don’t have the best credit rating; some mortgage lenders are more flexible than the average. Here are the most essential facts on bad credit mortgages if you want to buy property.
Causes of bad credit reports
A ‘bad’ credit score is actually a vague concept – often the score depends largely on what exactly is considered and what weights are attached to those values or variables. However, here are some of the most common issues that can affect your score:
- Electoral role information (if you’re not registered, it can be held against you)
- Missed payments or late payments of debts or commitments in the past
- Misinformation in previous credit reports (such as wrong addresses)
- Previous court records
- Having been declared bankrupt, and so on.
Poor credit mortgages
Getting a mortgage can often be difficult, and this is aggravated if you have a poor credit history. Luckily there are mortgage lenders who specialise in these cases, and consider the application of each on an individual basis.
Loan to value
The LTV (loan to value) is very important – this is the percentage of capital borrowed in as a percentage of the value of the property. Naturally, the lower your LTV, the higher your chances of getting your application approved.
How much can you borrow?
There are no hard rules to determine this without going into specifics, but a general rule is: between 4 and 5 times your yearly income. If your income (combined) is £40,000 then it should be possible to borrow between £160,000 and £200,000.
We have to be clear, however: having debts is not necessarily a bad thing – as a matter of fact, getting some debts may actually help improve your credit score; by paying them on time and in full, or even paying them in advance, you demonstrate you can handle the responsibility and commitment, which tends to increase your credit rating. If you feel you are completely willing and completely able to pay your debts and commit to a mortgage, don’t be dissuaded by previous experiences; contact a bad credit mortgage broker who is willing to look at your case and allows applicants with less favourable credit ratings.
AS A MORTGAGE IS SECURED AGAINST YOUR HOME OR PROPERTY, IT COULD BE REPOSSESSED IF YOU DO NOT KEEP UP THE MORTGAGE REPAYMENTS.