Having a spotty credit history doesn’t have to sound the death knell for your mortgage and home-owning ambitions. Having poor credit exempts you from desirable government schemes such as the Help to Buy or Shared Ownership schemes, with most private banks opting not to offer deals as a means to play it safe. While it’s never ideal to have poor credit, there are options available to you should you have a few unavoidable black spots on your credit history.
Previously, “bad credit mortgages” or “subprime” mortgages were the options if you had poor credit, but these were largely blamed for the disastrous 2008 economic crash. Since then, lenders have rightfully become stricter in their mortgage assessments, but there are still credit-friendly options available to those who need it.
Initial High Interest, Long-Term Solutions
Before delving into these options, be aware that these types of mortgages tend to have much higher interest rates to reduce the risk to the lender. Credit ratings depend on the bank, but they usually fall between 5 %and 7%. However, the interest rate is largely down to the decision of the lender, so particularly bad credit scores may see much higher rates.
While high interest rates may seem like deterrence, they have the long-term effect have improving your credit score over time.
Paying high interest can act as a salve for your credit rating, so even though you’ll have a lot to pay initially, you can negotiate a better deal or a new mortgage once your credit rating improves substantially.
Almost all bad credit mortgages will require larger than usual deposits, so attaining the initial funds may prove difficult. The deposit will typically make up 15% of the property’s value, but banks can change this value according to your credit score.
Overall, bad credit mortgages can vary exponentially, but you can definitely expect to pay a larger deposit and more interest.
Decide if You Really Need a Mortgage
Lastly, if your credit is really poor, then you need to make an informed decision about whether taking out a mortgage is the right option. In most cases, it’s better to improve your credit over a number of years before applying for a mortgage as, in the long-term, you’ll end up paying less, will have a reduced amount of risk on your shoulders and an array of other financial advantages that are coupled with improving credit.
However, if you’re committed, then we can help. If you’re worried about your bad credit or you can’t make headway with mainstream lenders, give our experienced residential mortgage brokers a call.
As always, think carefully before securing debt against your property.