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Bad credit mortgages
Bad Credit Mortgages

A bad credit mortgage is generally taken out by borrowers who cannot secure a standard mortgage as a result of their bad credit record. Borrowers with bad credit would have failed the mortgage lender’s standard creditworthiness checks. A bad credit mortgage is the last resort for borrowers with bad credit.

A bad credit mortgage may be the only solution for borrowers who want to buy a house, but who will not qualify for standard mortgage products because of their bad credit history.They may have acquired this bad credit as a result of past debts, defaults, arrears, or even bankruptcy.

However, bad credit mortgages are not necessarily just mortgages for people with bad credit. For example, some people who are self-employed or who move around regularly may inadvertently be categorized as a bad credit risk. This is not based on an actual bad credit history; it simply means that standard lenders cannot obtain sufficient proof of income or creditworthiness in order to grant them a mortgage.

What types of bad credit mortgages are available?

Depending on your choice of lender, it is generally possible to find any type of mortgage and all the standard deals within the bad credit sector. You should have access to bad credit mortgages with fixed rates, capped rates, discounted or tracker rates, just to name a few examples. However, not all lenders will offer a full range of these deals for mortgages for people with bad credit.  

How do bad credit mortgages work?

Lenders offering bad credit mortgages to people with bad credit will normally offer the same borrowing limits as the rest of the mortgage industry—approximately 3 times your annual salary if you are the sole mortgage holder or 2.5 times your combined salaries if you are a couple.

To accommodate the needs of these type of borrowers, some lenders have extended their services by agreeing to increase the amount they are willing to loan. Others, however, may decide to be cautious and more put a cap or limit on borrowings.

If you need a bad credit mortgage, you will need to find a large deposit of up to 20% of your total borrowings. Nowadays, however, it’s becoming increasingly common to find standard deposit rates of 5 to 10% offered on mortgages for people with bad credit. Incredibly, there are some rare bad credit lenders who will even allow 100% mortgages!

What are the benefits of bad credit mortgages?

  • For those with an impaired credit history, the existence of bad credit mortgages are a godsend. Without them, these people will not stand a chance of qualifying for any sort of mortgage and will have to forgo their dream of owning their home.

  • Lenders offering mortgages for people with bad credit generally have a better understanding of their specific needs and circumstances.

  • Interest rates on bad credit mortgages have also fallen in recent years.

Important considerations of bad credit mortgages

  • Do your own research to ascertain what your credit rating is; do not just accept what you are told by lenders.

  • Once you know your personal credit rating, you can shop around, and make comparisons before you choose a mortgage lender that is right for you.

  • Many bad credit mortgage lenders manage their interest rates by increasing their percentages on a sliding scale according your individual credit rating, rather than just adding on a set percentage. So, you may be offered a more favourable interest rate if your credit rating is not too appalling!

  • Make sure you have deposit ready. This can be as much as 20% of the bad credit mortgage loan.

  • Be careful that you are not tied into your bad credit mortgage deal for longer than necessary.


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