Bad credit mortgage advice guide
Specialist bad credit mortgage lenders offer assistance to those borrowers that have had bad credit problems in the past but not everyone will need a bad credit mortgage for their particular circumstances.
Consider whether you fall into one of the following categories and therefore need a bad credit mortgage:
Have you had any county court judgments (CCJ/ CCJ’s) registered against your credit file within the last 6 years?
A CCJ is registered following a court hearing where you have been ordered to pay a sum of money due but failed to do so. Once registered, a CCJ will have a detrimental affect on your credit rating for 6 years from the date of registration and will usually mean that you will need to use a bad credit mortgage lender if you are applying for a mortgage. Mosaic Mortgages will review your individual circumstances and recommend the best bad credit mortgage for your particular requirements.
There are certain circumstances in which a CCJ can be annulled (removed from your credit file) and if you have settled the debt within 30 days of initial registration then this bad credit entry will be removed from your credit file. As long as there is no other adverse credit recorded on your file then you should not need a specialist bad credit mortgage. However, you may just need to wait for the removal of the bad credit entry before applying for a mortgage. As well as being specialist bad credit mortgage advisors, we also have access to all high street mortgage schemes available in the mortgage market and will provide you with independent whole of market mortgage advice specific to your circumstances.
Alternatively, it may be possible to have the CCJ ‘set aside’ which means that a Judge has withdrawn the CCJ because it is wrong or so you can defend it. There may be grounds for this where you have moved house and never had the bill and subsequent Court papers in respect of the CCJ or you can prove that you have previously paid the sum due prior to CCJ registration. Many bad credit entries come to light when you apply for a mortgage and the lender declines your application in view of the bad credit registered against a previous address. Mosaic Mortgages will advise you as to the best course of action and whether the bad credit entry is likely to be removed from your credit file.
Unfortunately, if you settle the CCJ after 30 days following registration then the CCJ will remain on your credit file for 6 years but will show as ‘Satisfied’. In this instance you will need a specialist bad credit mortgage lender and Mosaic Mortgages will recommend the most suitable bad credit mortgage for your individual needs.
Have you had any Defaults registered against your credit file within the last 6 years?
A default notice is issued by a creditor when you have failed to keep payments under a credit agreement. Under the terms of the Consumer Credit Act 1974, before a lender can take action against a borrower in arrears (usually when you have missed 2-3 consecutive payments), a default notice must be served and typically once issued, the lender will advise all credit reference agencies which will result in a bad credit entry being registered on your credit file.
A Default will remain as a bad credit entry on your credit file for 6 years from registration (if credit account is dormant) or final satisfaction of the entry. In this regard a Default can be worse than a CCJ with regards the need for a bad credit mortgage as once issued, the financial institution that registered it is unlikely to remove it even once it has been satisfied and it will show on your credit file for 6 years following satisfaction. Mosaic Mortgages will review your defaults and recommend the best bad credit mortgage for your circumstances.
Have you missed any payments on unsecured credit within the last 12 months?
Lenders use credit scoring techniques in assessing your ability to maintain mortgage and if you have missed / been late paying unsecured commitments then you may fail a credit score with a high street lender and need a more specialist bad credit mortgage lender. Read our credit scoring guide to discover what this means for your particular circumstances.
All lenders have different credit score cards and you may get declined by one lender but accepted by another. Unfortunately, a large number of searches conducted in a short period of time will also have an adverse effect on your credit file. Mosaic Mortgage have online access to most lender’s online decision in principle systems and we would generally run a decision in principle with 2 different lenders that credit score and if you are declined, we would then consider a lender that doesn’t credit score before applying for a bad credit mortgage.
Have you missed any mortgage payments or secured loan payments within the last 24 months?
Since the sub prime mortgage crisis in August 2007 where subsequently many specialist bad credit mortgage lenders withdrew completely from the mortgage market or closed their doors altogether, it is now extremely difficult to obtain a bad credit mortgage if you have mortgage arrears.
Bad credit mortgage lenders are interested in the ‘payment profile’ of your mortgage and lenders are ideally looking for 12 clear month’s payments made on time over the last 12 months (even if there have been more historic arrears and / or outstanding mortgage arrears at present). In theses circumstances you will still need a specialist bad credit mortgage but Mosaic Mortgages will assess your payment record and recommend the most appropriate bad credit mortgage for your particular needs.
Up to 3 missed payments within the last 12 months on your mortgage and it is still possible to obtain a bad credit mortgage but at a significantly reduced loan to value. (50%) However, unless you needed to raise additional funds on your mortgage should available equity allow it or were moving house, then the 9% interest rates from the specialist bad credit mortgage lenders that allow mortgage arrears is likely to put you off.
Are you in a Debt Management Plan or any special arrangement with your unsecured creditors?
Specialist bad credit mortgage lenders view any form of informal reduced payment arrangement with disdain and will either decline a mortgage application outright or alternatively assess affordability for the mortgage using the contractual payments showing on your credit file.
Since the credit crunch and tightening of criteria, The FSA (regulator of the mortgage industry) has placed pressure especially on bad credit mortgage lenders to prove that a new mortgage is both affordable now and in the future. Mortgage lenders deem a debt management plan or special arrangement as a short term temporary agreement and will therefore assess your affordability of the new mortgage using the actual monthly payments due under each credit agreement and not utilise the reduced payment to the debt management company.
In effect, unless you intend to apply for a bad credit remortgage to repay the debt management plan, you will fail the bad credit lender’s affordability assessment and you will be declined for a bad credit mortgage. Mosaic Mortgages has access to all specialist bad credit mortgage lender’s affordability calculators and will be able to advise you on your mortgage options with a debt management plan.
Are you in an IVA (Individual Voluntary Arrangement)?
An IVA is a legally binding agreement between you and all your creditors where you agree a monthly payment over a specific period of time (usually 5 years). An Insolvency Practitioner will draw up the proposal and if agreed manage it on your behalf.
As it is a legally binging agreement, bad credit mortgage lenders will recognise the agreed monthly payment instead of the historic contractual payments due to any unsecured creditor (as in a debt management plan) but there is a very limited choice of bad credit mortgage lenders that are willing to consider applicants with an IVA.
If you are currently in an IVA or have been discharged for under 3 years then you will need at least 50% deposit even in order to obtain a bad credit mortgage and you can expect to pay rates of around 9%. If you have been discharged from an IVA for over 3 years then you will need at least 40% deposit but would still need a use a bad credit mortgage and rates are still around 8.25%.
Are you discharged from Bankruptcy?
Bankruptcy is a type of insolvency and means that usually your unsecured debts outweigh you available assets and you are unable to maintain your payments as they fall due. Bankruptcy will wipe the slate clean usually after 12 months but the inability to service past debts is not looked on too kindly by bad credit mortgage lenders.
As the bad credit mortgage market is in it’s infancy again following the credit crunch, many of the specialist bad credit mortgage lenders will not lend to anyone that has been bankrupt. Under the terms of your bankruptcy you are legally obliged to disclose it to the lender but even if you slip through the net, the solicitor prior to completing the mortgage will undertake a Bankruptcy search and if an applicant has failed to disclose a bankruptcy, the mortgage offer will usually be withdrawn.
If you have been discharged for under 12 months then you will need at least 50% deposit even in order to obtain a bad credit mortgage and you can expect to pay rates of around 9%. If you have been discharged for over 3 years then you may still need a use a bad credit mortgage with at least 40% deposit but there are some high street lenders that may consider an application. Mosaic Mortgages will assess your individual circumstances (likelihood of passing a credit score following a bankruptcy) and recommend whether we feel a bad credit mortgage would be appropriate for your circumstances.
We strongly recommend that you contact Mosaic Mortgages to discuss your specific requirements and to see whether you are eligible for the various bad credit mortgage schemes that we have access to. As we are offering whole of market advice, we will assess your individual circumstances and recommend the most appropriate bad credit mortgage for your needs.