Bad Credit Mortgages

One of the most important checks that mortgage lenders do when you apply for a mortgage is a credit check.

Your mortgage lender will contact one of the main credit reference agencies in the UK and will ask them to provide a credit rating for you. This credit rating, or score, is a measure of how risky it is to lend you money.

If you've ever been unlucky enough to fall behind on your mortgage or loan payments, get a CCJ or even go bankrupt, you may find you have a bad credit score.

The good news is that as long as you aren't actually bankrupt, you should still be able to get a mortgage. This is where bad credit mortgages come in.

Where to Start?

Bad credit mortgages are aimed at people with less than perfect credit scores. They are often referred to as adverse credit mortgages or sometimes as sub-prime mortgages - it all means the same thing.

Bad credit mortgage lenders understand that you may have had some financial problems in the past. Redundancy, illness, divorce and bereavement can all cause unexpected financial problems, even if you previously had a good record.

Bad credit mortgage lenders recognise that as long as you have sorted out your previous problems and now have your finances in order, you are not necessarily a bad credit risk.

Do All Lenders Offer Bad Credit Mortgages?

No.

It's important to understand that to get a bad credit mortgage you must apply to the right kind of lender. Many mainstream high street lenders are not interested in the bad credit market and will simply reject your application - leading to another black mark on your credit record.

The secret is to find the bad credit lenders and apply to them. Many bad credit mortgage lenders only deal through brokers and do not have costly high street offices.

Finding a good IFA (Independent Financial Adviser) is important - the internet and Yellow Pages are both good ways to do this, as is a recommendation from someone you know.

Applying For a Bad Credit Mortgage

Once you have found a broker or lender you feel you can trust, you need to make sure you are honest with them.

As part of the mortgage application process, a credit check will be run on you - so if you try to hide anything, you will be discovered and your application refused.

The only sensible approach it to be completely honest about your financial situation and past problems. That way, your mortgage adviser will be able to find the best mortgage for you and improve your chances of your application being approved.

Will It Have A Higher Interest Rate?

Although bad credit mortgage interest rates have improved in recent years, they will always be higher than prime (good credit) interest rates. This is simply a result of how lending risk is calculated - people who have had financial problems in the past are considered a higher risk than those who have not.

The good news is that over time you may be able to 'repair' your credit rating by becoming a good borrower again - never missing or being late with any of your payments.

In fact, paying off a mortgage reliably is one of the best ways to improve your credit score.