Mortgages for those with bad credit histories

Your ability to obtain a mortgage is greatly influenced by your credit history.

A mortgage applicant with a good credit history is obviously attractive to all mortgage Lenders. A mortgage applicant with a bad credit record will find their options more limited.

Here we set out what you can expect in the current mortgage market if you have had bad credit in the past.

On the next section of this page we refer to different bad credit issues such as missed payments, Defaults, County Court Judgements, Debt Management programmes, and Bankruptcy. If you are not familiar with these terms and need to understand which category you fit into, we have provided some background information at the bottom of the page to assist you.

Your credit file

You credit file carries six years of your credit history and is the primary tool used by a Mortgage Lender to make a decision on whether you are a good lending risk.

If you are not sure what your credit file contains you can obtain a copy from companies such as Experian or Equifax.

More details about your credit file and how it works are set out below at the bottom of this page.

To get an idea of your potential mortgage options please assess your credit record against one of guide bands below.

Our colour bandings above are intended merely as a guide. Each individual’s situation will be assessed by the respective Lender and following this mortgage terms may or may not be offered.

An explanation of credit terms

Missed credit payments

Have you missed payments or made late payments on credit?

If you have this may show on your credit record. A credit file is held on you by companies such as Equifax or Experian, and each time you take or repay credit, that information is logged on your file by the credit provider.

Your credit file contains details of when you applied for credit and who to – how much you have borrowed – who from, and what the regular repayments are.

Most importantly from a prospective lender’s point of view your credit file shows details of when payments were made and when they were missed.

A missed payment will reduce your changes or obtaining credit. Several missed payments will cause a larger problem.

Two tips to avoid missed credit payments showing on your credit file

1. Use Direct Debit Mandates where possible.

2. Make your payments early in the month so that if there is a problem you can make the payment up in the same month before your lender registers a missed payment on your credit file.

3. In our experience the most common cause of late or missed payments are mobile phone bills. To avoid this risk use pay as you go contracts.

Defaults

A default is formal notification from your Creditor that payments are not being paid on time. You will not automatically get a default if you miss a payment on your credit as they are usually issued when you are in arrears by three to six months.

Your default notice will outline all relevant information on the debt and why you are in default.

Default notices should not be ignored as they are the first sign that legal steps may be taken to recover your debt. They are therefore the stage before a CCJ.

County Court Judgements

Do you have, or have you had, a County Court Judgement against you?
You are not alone, around two thousand County Court Judgements (CCJ’s) are issued every day.

A County Court Judgement (CCJ) is issued by a County Court if you fail to pay money that you owe.

If you have an outstanding debt that is not being paid your Creditor can apply to the Court for a County Court Judgement. The Court assesses if there really is a debt to pay, if they decide there is, they will issue a CCJ and decide how the debt should be repaid. The average CCJ size is around £3,300.

You know this process is happening as you will be sent a CCJ Claim form prior to the judgement being made. This gives you the opportunity to state your side of the case.
When the Court date arrives you do not need to attend if you are not disputing the claim.

What if I don’t pay a CCJ?

If you do not pay the CCJ inside the terms decided by the Court, your Creditors may ask the Court to enforce the order. If they do this legal costs will be added to your debt.

Action then may include:

1. A warrant of execution where a Court appointed bailiff takes your goods in order to sell them to help pay the debt.

2. An attachment of earnings allowing the debt to be repaid direct from your salary by your employer. This can obviously result in a difficult situation with your employer knowing about your debt issues.

3. A charging order – where a charge is placed against your property to deduct your debt from sale proceeds. This will make it difficult for you to mortgage or remortgage your property.

4. A third party debt order that freezes your bank account until you pay the debt due.

Mortgage Arrears

Mortgage arrears are a serious problem and may lead to you losing your home. However, no Mortgage Lender likes to repossess and they will take steps to assist you through difficult financial periods and get you back on track.

The worst thing you can do if you do not have the funds to make your mortgage payment is not to inform the Lender. The sooner the Lender knows, the sooner they can help you.

If you ignore mortgage arrears and do not contact your Lender they will have to assume the worst and act accordingly.

If you have had mortgage arrears in the past you will be aware that the normal route is for the Lender to arrange a slightly higher monthly payment with you once things have settled down to repay the arrears.

Of course mortgage arrears on your record are not attractive to prospective mortgage lenders when you seek to remortgage of purchase a new property.

Debt management programmes

Under a debt management programme a third party becomes involved in your situation. This person negotiates with your creditors to reduce your monthly payments to a level you can afford within your income, or perhaps even to write off some of your debt.

Under a debt management programme you will set out your essential monthly outgoings such as food, mortgage or rent, rates, bills, travel etc, and a calculation will be made as to how much you can afford to repay your creditors.

A debt management programme can be advantageous as it will stop your creditors chasing you by phone and post, taking much of the stress away.

There are a number of private companies offering debt management services but you should be aware that they will charge a fee to assist you.

There are Government and Charitable bodies who will assist you for free.

A good starting point is to visit your local Citizens Advice Bureau.

Bankruptcy

Bankruptcy is the final step if you cannot pay your debts. It gives you the opportunity to wipe the slate clean and start again. It does however, seriously affect your chances of obtaining future credit and will impact on your lifestyle in the short term.

A Bankruptcy order may be requested by yourself or by your creditors (provided you owe the petitioning creditor as least £750). Under the order your assets are turned to cash and your creditors paid as much as possible from the proceeds.

After a Bankruptcy order you need to stop using your bank account(s). You also need to declare you are bankrupt if applying for any credit above £500.

A trustee will be appointed to handle your bankruptcy and the repayment of your debt.

Bankruptcy and your home

If you own your home with or without a mortgage your interest in the home will form part of your estate which will be dealt with by your trustee. The home may have to be sold to go towards paying your debts.

If your husband, wife or children are living with you, it may be possible for the sale of the property to be put off until after the end of the first year of your bankruptcy.

Your husband, wife, partner, a relative or friend may be able to buy your interest in your home from the trustee. Such a purchase would prevent a sale of the property by the trustee at a future date.

Your spouse or any other interested party should take legal advice about the home as soon as possible

Bankruptcy and the Self Employed

If you are made bankrupt your business is shut down and your staff dismissed. There is no restriction on a bankrupt being self- employed so you may start trading again.

How long will you be bankrupt

The bankruptcy period lasts for up to 12 months (it can finish earlier). The impact of the bankruptcy on your financial situation can last much longer.

Alternatives to Bankruptcy

You can consider an Individual Voluntary Arrangement (IVA), this gives you more say as to how you pay your creditors and it may be easier to keep your home that under bankruptcy. You will avoid the restrictions of bankruptcy and the overall costs to you may be less.

Individual Voluntary Arrangement

An IVA is a type of debt relief order and in order to arrange one you will need to appoint an insolvency practitioner to handle your case – or appoint the official receiver.

Under an IVA agreed payments are made with your Creditors over a set period of time in order to your avoiding bankruptcy. Whilst you are in an IVA your options for further financial arrangements are severely limited.