Mortgages for First Time Buyers with Bad Credit

Almost any bad credit issue can cause problems when it comes to getting a mortgage. This is because credit problems suggest to lenders that you might struggle to make your repayments on time, meaning that they would be taking on a higher risk if they decided to lend to you.

The most important things to consider are how severe the credit issue is, as well as how recent it is. Smaller credit problems such as minor missed payments will not look as bad to a lender as more major issues such as bankruptcy. Also, the longer it’s been since the bad credit event, the less of a negative impact it will have on your credit score and the mortgage options available to you.

Having no credit rating might not seem like a credit issue, but it is. If you have nothing in your credit history, this doesn't provide the lender with any proof that you’re capable of paying off bills and loans properly. This can make it harder to get a mortgage.

It’s important to note however, that you probably have more on your credit report than you first thought. Simple things like paying your phone bill on time and being registered on the electoral register can contribute to building your score. If you’re concerned about your credit rating, check with credit reference agencies to find out your score.

A county court judgement is a serious credit issue. It’s still possible to get approved for a mortgage, but you’ll likely need to use a specialist adverse credit lender, which means you may have to pay a higher rate and provide a bigger deposit.

The major things to consider with a CCJ on your credit report is how long ago the CCJ happened, how many CCJs you have, the value of the issue and whether or not it has been fully satisfied. If you have not yet satisfied the CCJ, you’ll find that you have access to a very small handful of lenders.

Having defaults on your credit report will likely mean that you have to use a specialist lender. However, different types of defaults will often be viewed with varying levels of severity. For example, a small default on a utility bill will often be seen as less of a problem compared to a default on a mortgage. Lenders also prefer to see settled defaults compared to unsettled defaults.

An IVA (individual involuntary arrangements) suggests that you have more major issues with handling your finances, as people rarely have to get an IVA for a minor debt. This means that you could be a higher risk to lenders; most high-street lenders will not consider any buyers with IVAs. Nonetheless, there are specialist lenders that consider applications on a case-by-case basis. These will come with higher rates and possibly deposit requirements than standard lenders.

Bankruptcy is one of the most severe issues that a first time buyer could have. You will need to wait a certain period of time after bankruptcy to apply – different lenders have different criteria regarding this.

Loans and credit cards are more common issues that most first time buyers have. The chance that you will get a mortgage with loans and credit card debt will depend on the severity of the issue. Some of the most common things that lenders will look at are:

• Percentage of credit limit used - if you use a high amount of your available credit, this might suggest that you struggle to manage your finances, and you might miss your mortgage repayment if you have an unexpected bill to cover
• Payday loans - these can be seen as less preferable than standard borrowing, especially if it was recent
• Credit card debt - as long as you’re keeping up your repayments and not using too much of your limit, these are usually accepted
• Unauthorised borrowing - if you have unapproved overdrafts or credit card debt, this will be seen as a more serious issue

Other credit issues that lenders will often look at are:

• Low credit score
• Late payments
• Debt management plans
• Lots of recent hard credit checks or credit applications

These might not be as serious as some of the issues listed above, but if you have multiple bad credit events then you will find it harder to get a mortgage at a competitive rate.

Credit problems can limit the deals available and the number of lenders who can consider you. Nonetheless, there are adverse lenders who consider applications from people with a lot of different credit problems.

Your best option is to contact a mortgage broker like John Charcol to find out your next steps.