Now that people have recovered from the financial (and other) excesses of Christmas, thoughts often turn to plans for the rest of year, and, for many, that may include buying a property. Experts agree that the most popular time to buy is early to mid-Spring and in preparation potential buyers are starting to consider now what kind of mortgage they can afford. But what if they have poor credit history, particularly if they have defaulted on mortgage payments in the past?
Finding a lender willing to accept your mortgage application can be difficult. The financial crisis in 2008 led to more stringent requirements about lending money; lenders have to feel confident that borrowers can afford to pay back a mortgage, are able to manage their finances and can pay bills on time. Many mainstream lenders will reject people with County Court Judgements, a previous declaration of bankruptcy or poor record of bill payment. And unfortunately, a series of rejections from lenders can also have a negative effect on your credit rating.
That’s the bad news – now for the better news! There are lenders in the market who will consider people with a poor credit history, especially those who have repaid past debts and can show evidence of improved financial management. These lenders are known as adverse credit providers, and offer mortgages at a significantly higher rate of interest than conventional mortgages. Although this might seem unfair, the higher rate is a reflection of the higher risk the lender is taking with their money. A larger deposit on the property may also be required.
What can you do?
You should prepare well in advance of applying for a mortgage. Lenders will ask to see at least 3 months of bank statements which will indicate how adept you are managing your outgoings. Ensure that you are not going beyond your overdraft limit and ideally that you can remain in credit. Make sure direct debits are set up for regular outgoings and that you don’t default on any of these payments. Also, ensure that you are on the electoral role. If anyone is prepared to act as a guarantor for you that will improve your chances of success.
If you find yourself in a situation of having poor credit history, it’s a good idea to contact a broker and ask for advice. A good broker will take into account your past difficulties with credit, your present situation and will discuss what your future needs might be, for example, if you are planning to start a family, become self-employed, or may be downsizing in the future.
Too often lenders will turn away borrowers who are hard-working but who have had unforeseen difficulties such as illness, loss of employment, divorce or some other circumstance that has left them with financial problems. A broker will take the time to understand a client’s individual circumstances and will use their specialist knowledge and connections with lenders to advise borrowers throughout the application process.