With a bad credit rating, what are my chances of getting a mortgage?
For those seeking first time buyer mortgages, you might not have heard how just by searching for mortgage rates can affect your credit rating if you’re not careful. What you might not know is if you are searching online for a mortgage and complete an enquiry form you could be put through a credit check, with many firms treating the enquiry as a pre application for a mortgage and burying this fact in the terms and conditions which, if you’re like me, no one ever reads. Deplorably credit reports do not distinguish between an enquiry and a rejection. If you move on to another broker and apply for a mortgage query with them, they will see the last enquiry, but to them it will seem like a rejection, meaning they’re likely to also reject your inquiry, by this point, sod’s law kicks in and they will also reject your mortgage. It’s a vicious spiral downwards with no easy way out if you don’t tread carefully; to get around this it is advisable to speak to a mortgage broker or an independent financial adviser (IFA) to begin with, the advantage of this route this they can search on your behalf, keeping your credit score intact.
Most, if not all the mortgage firms in the UK will either use Experian or Equifax to check your credit ranking, so doing a credit check with one or both of them yourself would be advantageous first before applying for mortgage inquiries to gain a solid idea of where you stand. It is not well known that the credit rating will be based on your current address, so if you live with someone with a low credit score, it will artificially bring down your own score at the same time. Other ways your score can be wrongly low include being self employed and/or have unequal streams of income will automatically weigh against you; it would take time to untangle the mess of being mislabelled from this. If your situation is worse than a simple credit miscalculation, the door is not closed; there are still options to gain a mortgage as there is an emergent sector that specialises in what are known as “Bad Credit Mortgages” or “Credit Repair Mortgages”. Though obviously there will be drawbacks that must be faced that would not be faced with a “mainstream” mortgage.
Both your interest rates and deposit will be higher than the average mortgage, this is why the sector is growing even though the housing market overall is still lethargic, these mortgages are attracting the high street banks as well as the long established mortgage lenders as they make more money for themselves. The Credit Repair Mortgages are exactly how they sound, over time they slowly repair a credit rating thanks to the regular mortgage repayments, depending on how deficient your credit rating is, the repair time can vary, though on average it will be somewhere around three years. You will be locked in to the mortgage for the period agreed with a break clause after the agreed upon amount of time has passed. It is best to make sure the repair mortgage doesn’t last much longer than it takes to actually repair the credit rating, as it’s then possible to remortgage onto a more conventional mortgage, to gain more competitive rates. The terms and conditions of the credit repair mortgages are incredibly strict, with no option of flexibility; written into the contract will be over excessive penalty fees to ensure regular payments are met. One of the upsides people to be more disciplined with their money in the future.
As already stated in this article it’s important to talk to an IFA or Mortgage Broker who can help you shop around for the best deal, even when it comes to credit repair mortgages, though be wary not to be caught out by loan sharks or chancers. It is on the whole uncommon but has happened; the Financial Services Authority has a regulated list of qualified advisers and companies’ so checking this list is probably the best place to start. Like you credit rating being affected for online mortgage enquiries, some companies will charge you for simply applying for a credit repair mortgage, another reason to use an IFA as they can investigate on your behalf.
To conclude, it’s not the end of the road if you have a bad credit rating, mortgage options are still available if you are willing to take on the extra conditions that come with them, short term pain for long term gain.
Wilbur O’Chaffin works at JustMortgageAdvice.com, who specialise in first time buyer mortgages and look to find the best mortgage rates for all their customers, first time buyers or not.
