If your credit rating is sending conventional mortgage lenders running for the hills, don’t despair. You can still become a property owner.
The days of easy credit that have summed up the consumer landscape over the past couple of decades have claimed plenty of casualties. If you are among them, there is no shame in that, and you are in good company. Many of us have found ourselves stretched to financial breaking point for all sorts of reasons.
The problem is that your credit score follows you around like a bad smell for years, and while there are certainly things you can do to help it recover, it is not something that will happen overnight. If you want to put the past behind you and move forward in life by buying a home, trying to get a mortgage with poor credit is not as difficult as the high street lenders might have you believe. Here are some ways you can a leg-up onto that first rung of the property ladder, whatever your credit status.
When it comes to loans, it is all about measuring risk. If your credit rating is poor, that is one risk factor that is against you, but you can improve the chances of the lender agreeing by improving one of the other factors. A great way to do that is by putting down a larger deposit. For one thing, a lower loan-to value percentage on your mortgage means a lower risk in itself. For another, if you’ve got cash behind you, it is a good indicator that you are serious.
Of course, not all of us have tens of thousands of pounds lying around to put down as a deposit. If you’ve got only minimal savings and a low credit score, the high street banks will all show you the door. Fortunately, there are specialist mortgage brokers out there who can look beyond the big name banks. They will be able to find you special deals aimed specifically at lenders who have bespoke products for people just like you.
The risk / return factor will play a part here, and interest rates will inevitably be higher, but talk openly with your broker and you’ll be able to find a deal that is within your financial capability. The additional benefit here is that once you have a deal in place and start making payments, the effect on your credit rating will be little short of magical – so when you reach the end of the tie in period, you’ll most likely be able to transition to a conventional mortgage deal with a lower interest rate.
If you have family or friends with some money tucked away, they might be prepared to help. They will work with you on a trust basis, and so your credit rating will not have a bearing. This can be the most cost-effective way of buying property with bad credit, but it is fraught with risk.
If you default on the payment, it can destroy personal relationships, so draw up a written agreement and be extra careful to make sure you can afford to repay what you borrowed under the agreed terms.