Before we look at adverse credit mortgages, let’s quickly reiterate the importance of your credit report over and above any credit score with any credit reference agency. Using your credit score as an indicator when applying for a mortgage is misleading as most lenders are not particularly interested in what it says. Mortgage lenders typically have their own internal credit scoring system and assess the content of your credit report. Your credit report shows a breakdown of your credit history over the last 6 years as well as anytime you’ve applied for credit, your address history and various other bits of relevant information from your financial history.
Being registered at the correct address, being on the electoral roll at your home address, ensuring all credit cards, loans and finances deals are paid in full and on time, avoiding any CCJs, payday loans and too many full credit searches are all ways to ensure your credit report is flawless.
Adverse credit includes but is not limited to the following:
- Credit card arrears
- Utility/Communications arrears
- Loan/finance arrears
- Mortgage arrears
- County Court Judgements (CCJs)
- Payday loans
- Individual voluntary arrangements (IVAs)
- Company voluntary arrangements (CVAs)
If utility bills or credit card payments are made late or a CCJ has now been satisfied, unfortunately this doesn’t mean everything is perfect again. This information will still be noted on your credit report for 6 years as with all other relevant information. While it’s better than if payments have been defaulted on and remain outstanding, it may still put you outside some mortgage lenders criteria which is why we stress the importance of paying debts in full and on time, every time.
While major high street banks often have stricter criteria when it comes to adverse credit, smaller banks and building societies are often more flexible and the mortgage rates offered can be just as competitive. Naturally, this is dependent on the severity of the adverse credit and if the adverse is significant, rates will generally be higher to reflect the increased level of perceived risk in lending. Various mortgage lenders offer different tiers of products and the level of adverse credit you have depends which tier of products you’ll be eligible for. This acts as a great way to allow people with significant adverse credit to access mortgages and subsequently own their own homes.
There are many reasons people may have adverse credit. Honest mistakes in forgetting to pay bills, a large, unexpected expense which cannot be paid and a reduction in income causing a cash flow problem are common examples we come across. If you’ve found yourself in these circumstances and are concerned how it will affect your ability to apply for a mortgage, please get in touch and we’ll be happy to discuss this with you. We can analyse the content of your credit report and look to match you with a lender who will consider your application.