As an entrepreneur, if you’ve been turned down for a credit card or rejected for a loan it may be because you have adverse credit history due to personal circumstances, or potentially linked to your business. This can make life difficult as so much of it revolves around our access to financial products. In particular, poor credit can impact on your ability to secure a mortgage.
If you’re in this position and need a mortgage you may well have heard about an adverse credit mortgage. But what are adverse credit mortgages and could one help you?
We’ll take a look at the likelihood of you getting a mortgage with adverse credit, even if high street lenders have rejected your application in the past. We’ll also consider what other factors could hinder, or indeed help, your chances of being accepted.
What is an adverse credit mortgage?
An adverse credit mortgage is a mortgage that is available to borrowers who have negative payment information on their credit file, known as ‘adverse credit’. They are often also referred to as ‘bad credit mortgages’.
To be entirely accurate ‘adverse credit mortgages’ don’t exist, they are just mortgages that are available to people who may have been turned down for other mortgage products, or who a high street lender wouldn’t accept. However, in practice you will often see lenders and brokers refer to particular mortgages as ‘bad credit or ‘adverse credit’ mortgages.
Not all lenders offer adverse credit mortgages, and the lenders who do offer them tend to focus on the specialist mortgage market. That is, they offer mortgages to borrowers with a less straightforward financial situation, or previous financial problems.
In terms of adverse credit mortgages, when you apply for a mortgage lenders will look at your credit history to assess risk. Many high street lenders will reject your application if your credit history is poor. Lenders offering adverse credit mortgages however have different criteria.
Can you get a mortgage with bad credit?
As we’ve already explained there are lenders who will not automatically turn you down for a mortgage just because of your credit history. These lenders tend to take a much more ‘case-by-case’ approach to approving mortgage applications, and look much more closely at the individual circumstances of prospective borrowers.
If you are approved for an adverse credit mortgage you may find that you are required to provide a higher deposit, or that your interest rates are higher. This isn’t necessarily always the case however, and as with all mortgages, it pays to take independent advice from an adverse mortgage specialist who really understands everything that is on offer in the mortgage marketplace.
Why is it difficult to get a mortgage with adverse credit?
As already said, when mortgage lenders carry out credit checks they do this to assess risk. Simply put, they are trying to work out how likely it is that you will, or will not, be able to pay back your mortgage.
Looking at how you have behaved financially in the past gives them an idea of how you will behave in the future. This can seem a little unfair if you feel that you are now demonstrating much more financial responsibility, or if your poor credit history was not entirely your fault – for example because of the actions of a previous partner.
However, most lenders need a quick and generally reliable way to indicate whether you have had trouble managing money in the past. If your credit history shows things like CCJs, IVAs, debt management schemes, repossessions or bankruptcy, this indicates to them that you may well have difficulty managing your finances and subsequently may struggle with a mortgage.
In addition if you have had no credit in the past, i.e. you have never had a credit card or taken out a loan, you will have no credit history at all. This posers lenders with a problem; they have no idea how you may behave financially and so may still turn you down for a mortgage.
Can I hide my adverse credit from a lender?
A mortgage lender will have access to your credit file when they carry out their initial checks. This file will detail the last 6 years of your credit history and will include not only adverse credit but also details of amounts that you owe on credit cards and personal loans, and details of all good repayment activity.
Some items, such as bankruptcy, will appear on your file for longer than 6 years. Additionally, it is not uncommon for lenders to ask if you have previously been made bankrupt, even if it no longer appears on your file. It is never a good idea to lie to lenders so you should always be entirely honest.
Rather than considering hiding adverse credit, it is much better to work with brokers and lenders who understand your circumstances. Besides anything else this makes it much less likely that you will get into financial difficulty in the future because you have overstretched yourself by being unrealistic about your abilities to service your mortgage.
Will lenders look at anything else besides adverse credit?
Yes, lenders look at a number of factors when deciding your ability to repay a mortgage. It’s always worth keeping that in your mind when you’re worried that your adverse credit means that you won’t get a mortgage. Try and focus on the positive.
When lenders are assessing your ability to repay your mortgage one of the first things they will look at is your employment status and income. The higher and more stable your income the more likely you are to be accepted for a mortgage. People in less stable forms of income, such as the self-employed may find it trickier to find a lender without specialist advice.
Lenders will also be interested in the size of your deposit. Your chances of finding an adverse credit mortgage will significantly improve if you can get together a large deposit. If your credit history is very poor, it may be worth putting off thinking of buying a house until you can build up a deposit. This will give you access to a number of lower loan-to-value (LTV) mortgages.
Age is also a consideration for mortgage lenders. Unfortunately, many lenders are reluctant to provide mortgages to older applicants, with many not offering mortgage loans to anyone over the age of 75. All the more reason to act early to sort out your finances.
Lenders also consider any outgoings or current financial obligations. The thing to keep in mind is that criteria vary from lender to lender.
Can I check my credit score?
You can check your credit score quickly and easily through a variety of websites. Some of these offer free trials or checks so it’s worth looking around. All credit checks however draw their information from the 3 main Credit Reference Agencies (CRAs) – Callcredit, Equifax and Experian – although they may differ in what exact information they use. They also differ in how they represent your score. Although all will give you an idea of whether you credit score is ‘good’ or ‘bad’.
One thing to remember here is that these credit scores only provide an idea of how likely you are to be accepted for a mortgage. Lenders use much more sophisticated methods to determine who to lend to, so while credit scores can be a useful indicator of credit worthiness, they do not give the full picture.
Can anyone help me get an adverse credit mortgage?
Using a broker who specialises in working with adverse credit mortgage lenders is by far the best way of maximising the likelihood of finding a suitable mortgage for individual circumstances.
As we’ve seen lenders use a variety of criteria to decide who to lend to. Not only this, but lenders also change criteria all the time. A specialist mortgage broker will be up-to-date with respective lenders’ criteria. This allows them to match your circumstances to the lender who is most likely to approve your application.
A good, independent broker will also ensure that you end up with the mortgage that allows you to borrow the most for the lowest interest rate given your financial position.
Whatever the cause of your adverse credit, never lose sight of the fact that there is help available to you, and lenders willing to provide you with a mortgage.