Getting a mortgage with a poorer credit history

We’ve been locked away in our homes for more than a year. No wonder many of us are thinking that it would be much more comfortable in our own place.

And it is a feeling shared by many. According to the British Social Attitudes survey 86% of people want to own their own home. Last month NestEgg talked to two dozen people receiving these money tips. Almost all said Covid-19 had increased their interest in getting on the property ladder.

Past problems and future plans

But getting a mortgage with a poorer credit history is hard.

Maybe there’s an old County Court Judgment (CCJ). A couple of missed payments from a while ago might be causing problems. Even a mobile phone default can get in the way.

The problem is that CCJs, missed payments and defaults stick around on your credit file for six years. The more recent a problem, the more it drives down your credit score.

As a rule of thumb, to get a mortgage you need a decent credit score. And a clear credit history for the last three years, preferably six.  

Watch the interest rate

Of course, there are always lenders willing to grant a mortgage to someone with a poorer credit history. But the payments will be higher. Higher payments are an issue with any loan. But when a mortgage stretches over 25 years, this can prove very costly.

In this example someone is buying a home for £150,000. They have a 10% (£15,000) deposit. Therefore, the total amount they need to borrow is £135,000. Most mortgages are repaid over 25 years:

Time Low-rate mortgage (3%) Higher rate mortgage (6%) Difference
1 month £640 £870 Monthly: £230
1 year £7,680 £10,440 Annually: £2,760
5 years £38,400 £52,200  5 yearly: £13,800
25 years £192,000 £261,000 Over the mortgage lifetime: £69,000

For the lower rate mortgage (3%) the cost of borrowing is £57,000 (£192,000 paid minus £135,000 for the mortgage).

If the interest rate doubled to 6%, you’d end up paying back £261,000. Over the lifetime of that mortgage, that’s £69,000 more compared to the 3% mortgage. And all because your credit score wasn’t high enough or you’d defaulted on a catalogue debt a while back.

Try the Money Advice Service mortgage calculator for yourself.

Three tips to get you started

If you’re waiting till CCJs, bankruptcies and defaults have gone there’s still plenty you can do to brush up your credit score. That way, when you’re ready to apply, the chances of being accepted improve. Here are three actionable tips to get you started:

  1. Get on and stay on the electoral register. If you’re not registered to vote, you’re very unlikely to be accepted for a loan, yet alone a mortgage. Read more.
  2. Build a credit history wherever possible. This can help if you’ve never borrowed before. Look for credit builder loans or credit cards. Read more.
  3. But if you do get one of those credit cards, keep the balances low. Read more about debt ratios affect your ability to get a loan.

Boost your chances of getting an affordable loan

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