Can You Get a Help to Buy Mortgage if you have bad credit?
What is a Bad Credit Mortgage?
Whether or not you have bad credit is determined by a credit file which details your history of financial responsibility. This is held by credit reference agencies and Mortgage Lenders will use the credit score on your file to decide whether or not they can lend to you.
There are no special ‘bad credit mortgage’ products and those with bad credit can apply for the same mortgage products as any other applicant, although less products will be available to them. Their likelihood of securing a mortgage offer is what will be affected. Generally your likelihood of acceptance is reduced, subsequent to the level of adverse credit you have.
No credit history/Low credit score
It’s possible to have a low credit score because you have no history of borrowing. This situation is least likely to affect your mortgage application and can be resolved fairly easily if it does.
Late and/or missed mortgage payments
If you’ve made late payments or missed payments on your credit cards or mobile phone bill, this will have affected your credit score and will slightly reduce your ability to get a mortgage. Missed mortgage payments are viewed in a much less favourable light.
Defaults and CCJs
Defaults and CCJs are marked on your credit file if you continually miss payments. This has a more severe impact on your credit score, but it should be possible to get some mortgages, with higher interest rates.
IVA/ Debt Management Plans, Repossessions and Bankruptcy
This level of bad debt makes it difficult to obtain a mortgage and often, you will need to wait until at least three years after your debts have been paid off, before you can apply.
What is Help to Buy?
There are a number of government home ownership schemes that fall under the umbrella of Help to Buy. Most commonly when we talk about Help to Buy, it refers to the Help to Buy Equity Loan.
How does it work?
This government loan of up to 20% (40% in London) is used to boost your deposit, lowering the Loan to Value rate of your borrowing and therefore improving your chance of obtaining a mortgage. This loan is interest-free for the first five years.
You will need to provide the first 5%, so you could have as much as 25% deposit in total (45% in London) to put towards your new home.
Who can apply?
To apply for a Help to Buy Equity loan you must be:
- A First Time Buyer
- Purchase a new build home only and the value of that home must be below the regional price cap for your region of the UK
- You cannot have previously or currently own any other residential homes or land
- You cannot have held any Sharia mortgage finance
Can you apply for a Help to Buy Mortgage if you have Bad Credit?
The Help to Buy Scheme was developed to help those who struggle to buy a home with a Standard Residential Mortgage product, so, whilst the severity of your debt will still impact your application, there is more flexibility in terms of what types of credit issues are acceptable for this type of mortgage.
You are likely to undergo further financial checks, but applicants in the following circumstances will be considered:
- You have a history of mortgage arrears, so long as this was more than twelve months prior to your application
- You have a current IVA or similar Debt Management Plan, as long as you can still afford repayments on your mortgage
- You have a history of bankruptcy, so long as this was discharged a year or longer ago
How do I Improve my Credit Score?
It’s usually beneficial to improve lower credit scores, before you apply for a mortgage. There are a number of ways you can do this:
- Pay bills and credit agreements on time and in full
- Minimise your spending to less than 50% of your current credit limits and don’t take out any further credit
- Ensure you are listed on the electoral roll at your current address
- Tidy up the details on your credit file; ensure addresses held are current and disused accounts are closed, break any financial ties to ex-partners
How Can Bespoke Mortgages Help?
If you’re concerned about how your credit score might affect your ability to get a mortgage, speak to us here at Bespoke. As Mortgage Brokers experienced in helping those with poor credit to find a solution and get onto the property ladder, we can help you to access lenders who are most likely to consider your circumstances.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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