First Time Buyer Mortgage Bad Credit History

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First Time Buyer Mortgage Bad Credit History

Diarmiud Phoenix explains how the mortgage process works if you are a First Time Buyer with bad credit.

Can you buy a house with bad credit as a First Time Buyer?

Yes, but it will depend on how bad your credit file is. There are levels to everything – some high street lenders are okay with missed or late payments if they’re minor, there’s a reasonable explanation for them and the credit history is otherwise good.

It’s when you start to get into CCJs and defaults that things become a bit trickier and the options become thinner.

Can I get a mortgage as a First Time Buyer if I have a CCJ, IVA, default, bankruptcy or if I have payday loans?

That’s where things become a bit more difficult – it’s not your simple missed or late payments, which can often be an oversight. If your credit history is otherwise good, those could be overlooked.

But County Court Judgements (CCJs), Individual Voluntary Agreements (IVAs), defaults and bankruptcy are usually a red flag to lenders that an individual has had trouble dealing with their finances in the past.

Most will insist that the IVAs and CCJs are gone from your report, which can take up to six years. One or two lenders take a more lenient approach – Kensington, for example, Leeds or Accord. They’ll each have limits within their criteria, which vary between the lenders.

Do First Time Buyers need a credit score? Can I get a mortgage if my credit score is very poor?

A common issue for first-time borrowers is that they have low or poor credit scores because they’ve never borrowed anything or had any type of credit in the past.

Because of this, a lender has no real way of knowing whether they are a responsible borrower or not. It seems counterintuitive – because they’ve obviously never had bad debt, but of course there’s no history.

In some cases we advise people to apply for small amounts of unsecured credit, like a credit card or store card, and keep up their payments for a few months. This will give you a positive footprint on your credit record, which increases your chances of getting a mortgage.

It doesn’t have to be for very long. You could just buy groceries or fuel on a credit card, with a low credit limit just in case you’re tempted to go crazy on it. Pay it off regularly and that will boost your score.

If your score is very poor for other reasons, such as bad credit in the past, you might have to get back on the straight and narrow until those things fall off your file.

How much deposit will I need and how much can I borrow if I have bad credit?

Lenders will often require borrowers with bad credit to put down higher deposits – putting it another way, they’ll offer lower Loan to Value ratios. People with bad credit present a higher risk to lenders, so they naturally want to reduce their risk exposure by insisting on higher deposits.

When we apply for a Decision in Principle for a client, the lender might offer a lower maximum loan than the affordability calculator would previously suggest. For example, it might suggest a client can borrow £175,000 – but at that stage we don’t know about the bad credit.

Once we apply for the Decision in Principle and the credit check is done, the lender might decide that rather than decline, the maximum they will offer is £150,000, for example. This is due to the higher risk for First Time Buyers with questionable credit backgrounds.

What’s the process of applying for a mortgage with bad credit as a First Time Buyer?

The application process is pretty much the same, but we always suggest our clients check their credit file before embarking on a mortgage journey. We want to avoid nasty surprises like having the application or Decision in Principle declined.

Some people believe their credit file is fine and they have never missed any payments – but when we apply for the Decision in Principle we find that there were a couple of missed payments or a default they’d forgotten about.

That sort of thing delays the process. Checking your credit report in the beginning means we’ll know not to apply to certain lenders. If we know one lender would decline it, we would approach another lender at the first step. Or perhaps through our knowledge and experience, we know they would overlook that sort of blip on a credit file.

So whilst the process remains the same, preparation for the process can be different for First Time Buyers with bad credit.

What steps can I take to improve my chances of getting a mortgage with bad credit as a First Time Buyer?

Firstly, try to keep your finances in order for as long as possible before applying for a mortgage. You can’t go back in time and erase the past, but you can certainly keep your affairs in order for the future, to have a good chance of getting a mortgage.

If you’ve got credit cards with balances on them, make sure they’re not maxed out. Even if it’s a small amount of credit, perhaps a limit of £300, if you’re using that every single month, you’re still using a high percentage of your credit facility.

It could actually help to increase your limit – even though it seems counterintuitive. If you’ve got a £1000 limit on your credit card and you’re only using £200 and clearing it each month, that’s going to boost your credit score. The key thing is not to use your full credit facility.

Even doing balance transfers and taking out a separate card to spread the debt will have a positive impact on your score.

Make sure that you’re on the electoral register with the correct address and it’s kept up to date – that can affect your score as well. Check for mistakes and errors on your credit file. It’s happened to me in the past – when you’re sharing a property with another person, sometimes their records can get mixed up with yours, without you realising.

You can get credit reference agencies like Experian and Equifax to correct any mistakes, to avoid negative impact on your applications.

How can a mortgage broker help a First Time Buyer with bad credit?

An experienced broker or financial advisor knows how to guide you through to the most appropriate lender and will offer you bespoke advice. We can help you clean up your credit report so that you can successfully get onto the property ladder as quickly as possible.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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