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Mortgages for people with bad credit rating

Some people in Britain do not meet high street lending criteria and will experience difficulty getting a mortgage because of a poor credit rating. Are you one of them? Whether you're a first time buyer, looking to move to your next home or want to remortgage, a specialist lender may offer you the key to unlocking the mortgage you need.

Past financial problems affect many

Many people struggle to pay bills and other commitments at some point during their lives, often in times of turmoil such as redundancy, bereavement or divorce. In some cases individuals can get a blackmark against their name, because they have been involved in a legitimate dispute over a bill.

If you have missed a payment (defaulted) on a previous mortgage, personal loan, hire purchase or credit card agreement or failed to pay a bill, your credit file may be adversely affected.

Most lenders will automatically run a credit check on anyone applying for a mortgage and something as minor as a missed payment on a book club could mean you have a poor credit score and cause your mortgage application to be declined.

If you have bad credit history such as CCJs, previous mortgage arrears, defaults on loans or credit cards, have been declared bankrupt or have no credit history, you may experience difficulty when applying for a mortgage with a high street lender.

If you have been turned down for a mortgage previously or feel that a standard high street lender may decline your application, all is not lost as there are a small number of specialist lenders who provide mortgage solutions for people who have experienced previous financial problems.

A professional mortgage advisor will be able to assist you as they'll know which lenders will be sympathetic to your situation and will give you impartial advice on the best mortgages for people with poor credit scores.

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For traditional lenders it's often your score that matters most

For most traditional banks and building societies, the decision they make in terms of  who to lend to is inextricably linked to the applicants credit score. Lenders use credit scoring to identify the degree of creditworthiness in the applicant. The lender looks at the information you provide in your application while scanning your credit report looking for anything untoward. This computerised automated process using data provided by credit reference agencies such as Experian, Equifax and CallCredit will output a number, your credit score. Borrowers are typically pigeonholed into categories. Those borrowers with the highest scores are often referred to as super prime or prime and will have the best chance of success while those with the lowest are termed as near prime or sub prime. Criteria does vary from lender to lender, but in most cases a history of bad credit will be damaging to your chances of racking up enough points with the likely outcome being rejection.

Ultimately the decision rests with the lender as each have their own methodology and definitions as the profile of an ideal customer. Credit reference agency Experian suggests there are 15 elements that make up a credit report and warn a high score is no guarantee, pointing out that 'even people with an Experian Credit Score of 999 can be rejected for credit'.

Specialist lenders look beyond credit scoring

When you have clearly defined rules as to your target customers, credit scoring is an efficient way of making consistent decisions. But many specialist lenders adopt a more refined approach, using skilled underwriters to make lending decisions, rather than automated scorecards. This more flexible decision making means they might say 'yes' while others will say 'no'.

Some specialist lenders take the view that credit scoring penalises certain types of borrower, those people with minimal credit history, those who move regularly, people who aren't on the electoral roll, those with limited trading periods, those looking to work past state retirement age, and of course those with a history of bad credit. These borrowers will typically have a low credit score but they may actually make credible and trustworthy borrowers. Where specialist lenders shine is getting to know and understand the complete customer profile, asking questions where clarification is needed.

The specialist lenders which lend to people with complex circumstances such as a poor credit history, look beyond the crudeness of a score to establish whether the borrower in front of them has overcome their difficulties and is in a position to comfortably afford a mortgage.

If you have a history of bad credit or have complex personal circumstances you will almost certainly benefit from the help of a specialist lender rather than a traditional credit scoring lender. 

Sub prime market set to grow

British consumers have racked up a record personal debt mountain of more than £1 trillion. Industry experts believe a growing number of borrowers will be unable to cope with debts and as consequence will have their credit reports tarnished by late payments, defaults, county court judgements, IVAs and personal bankruptcy.

What is known as the sub prime mortgage market (industry phrase for people with bad credit rating) is expected to grow faster than that of conventional mortgages due to the rising number of people hitting financial difficulty.

Figures from Research company Datamonitor reveal that the gross value of lending in the poor credit mortgage market was £24.6 billion in 2006, however by 2009 this figure nosedived as lenders recoiled following the break out of the financial crisis. Sub prime mortgages were seen as being a fundamental contributing factor to the global economic catastrophe.

In recent times the appetite amongst lenders towards non standard borrowers has improved with a few new lenders emerging offering a range of mortgages for borrowers with poor credit histories. Although the landscape is very much different compared to pre credit crunch, providing you are not an individual with habitual debt problems and have a good sized deposit at your disposal, help should be available.

  • Low credit score
  • First time buyers
  • Next steppers
  • Remortgage
  • Specialist bad credit lenders


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