If you have a low credit score, getting a mortgage can feel like a challenge. However, it’s not impossible. There are lenders who specialise in working with individuals who have poor credit. In this guide, we’ll help you understand the best options for securing a mortgage with a low credit score, the role of specialist lenders, and how to improve your chances of getting approved.
What is a specialist mortgage lender?
A specialist mortgage lender is a company that offers loans to individuals who may not meet the strict criteria set by traditional high street banks. These lenders focus on applicants who have poor credit histories or unique financial circumstances. While high street banks tend to have more rigid lending requirements, specialist mortgage lenders are more flexible and consider a wider range of factors when making their lending decisions.
How specialist lenders differ from high street banks
High street banks are often the first place people turn to when they’re looking for a mortgage. However, they are usually less willing to lend to individuals with low credit scores. This is because high street banks rely heavily on credit scores to assess the risk of lending. If your credit score is low, it can be difficult to qualify for a mortgage with a traditional bank.
Specialist lenders, on the other hand, are more likely to take a holistic view of your financial situation. They may look at factors beyond your credit score, such as your income, employment history, and current financial obligations. This can make them a more viable option for borrowers who may not be able to secure a mortgage through traditional routes.
The downside is that mortgages from specialist lenders often come with higher interest rates and more stringent terms. This is because the lender is taking on more risk by lending to individuals with low credit scores.
What interest rates can you expect with a low credit score?
When you have a low credit score, you’re considered a higher risk by lenders. As a result, you can expect higher interest rates than someone with a better credit score. The exact rate will depend on your credit history, the lender, and the type of mortgage you’re looking for.
On average, interest rates for bad credit mortgages can be up to 2-3% higher than rates for those with good credit. For example, if the typical rate for a standard mortgage is 4%, a borrower with a poor credit score could face a rate of 6% or higher. This higher rate means that while you might still qualify for a mortgage, you’ll end up paying more in interest over the life of the loan.
Should you use a mortgage broker for bad credit mortgages?
Using a mortgage broker can be a good move when you have a low credit score. Brokers are experts in finding the right mortgage products for their clients, and they often have access to deals that may not be available to the general public.
A mortgage broker can help you find the best rates by working with a network of specialist lenders. They can also help you determine what type of mortgage would be best for your needs and guide you through the application process. Additionally, brokers can save you time and effort by handling much of the paperwork and negotiations on your behalf.
While brokers typically charge a fee for their services, many borrowers find that the benefits—such as finding better deals and securing approval more quickly—are well worth the cost.
Alternative mortgage options for borrowers with poor credit
If you’re struggling to get approved for a mortgage due to your low credit score, there are several alternative options you can consider:
- Guarantor mortgages: If you have a trusted friend or family member who is willing to act as a guarantor, this can help improve your chances of getting approved. The guarantor agrees to cover the mortgage payments if you’re unable to make them. This reduces the lender’s risk and can make it easier for you to secure a mortgage.
- Joint mortgages: Another option is applying for a joint mortgage with someone who has a better credit score. This can increase your chances of approval, as the lender will take both of your credit scores and incomes into account.
- Government schemes: There are some government-backed schemes available that may help you secure a mortgage, even with poor credit. For example, the First Homes scheme offers financial assistance for first-time buyers, which can make it easier to get approved for a mortgage.
- No credit check mortgages: These mortgages are offered by some lenders and don’t require a credit check. However, they often come with higher interest rates and fees, so it’s important to carefully consider whether this option is right for you.
How to improve your credit score before applying
If you’re looking to improve your chances of getting a mortgage, one of the most important steps is to work on improving your credit score. While it can take time, there are several things you can do to raise your score:
- Pay your bills on time: Late payments can have a negative impact on your credit score. Set up reminders or direct debits to ensure you never miss a payment.
- Pay down existing debt: Reducing your credit card balances and loans will help lower your debt ratio, which is an important factor in your credit score.
- Check your credit report: Regularly check your credit report for any errors and dispute any inaccuracies. Incorrect information can drag down your score.
- Limit credit applications: Every time you apply for credit, a hard inquiry is made, which can slightly lower your score. Avoid making multiple credit applications in a short period of time.
Conclusion
Getting a mortgage with a low credit score can be challenging, but it’s not impossible. Specialist lenders, higher interest rates, and a larger deposit can all help improve your chances of approval. Whether you decide to work with a broker, explore alternative mortgage options, or focus on improving your credit score first, there are several ways to increase your chances of securing a mortgage.
If you’re ready to take the next step, make sure to compare options and work with a broker who specialises in bad credit mortgages. They can help you find the best deals and guide you through the process.