Simple Steps to Get Mortgages in the UK, Even with Less-Than-Perfect Credit
Are you dreaming of owning a home in the UK but worried that your less-than-perfect credit might stand in the way? Don't lose hope! While it's true that a spotless credit history can make it easier to get mortgages, it's not the only factor lenders consider. With the right approach and preparation, you can increase your chances of securing a mortgage, even if your credit isn't ideal. In this guide, we'll walk you through five simple steps to help you get mortgages in the UK, regardless of your credit situation.
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Step 1: Assess Your Financial Situation
Before you start the process to get mortgages, it's crucial to have a clear picture of your financial health. This step is especially important if you have less-than-perfect credit, as it will help you understand what you're working with and where you need to improve.
Check Your Credit Score The first thing you should do is check your credit score. In the UK, there are three main credit reference agencies: Experian, Equifax, and TransUnion. Each of these agencies may have slightly different information about you, so it's a good idea to check your report with all three.
You can get a free copy of your credit report from each agency once a year. When you receive your reports, review them carefully for any errors or discrepancies. If you find any mistakes, report them to the respective agency immediately. Correcting these errors can give your credit score a quick boost.
Understanding your credit score is crucial when you're looking to get mortgages. While there's no universal "good" credit score, generally, a higher score will make it easier to get mortgages with better terms. However, don't be discouraged if your score is low – there are still options available, which we'll discuss later.
Review Your Income and Expenses Next, take a close look at your income and expenses. Lenders will want to see that you have a stable income and can afford the mortgage payments. Create a detailed budget that outlines all your monthly income sources and expenses. This will not only help you understand your financial situation better but also prepare you for the affordability checks that lenders will conduct when you apply to get mortgages.
Be sure to include all forms of income, such as your salary, any benefits you receive, and income from investments. On the expense side, list everything from rent and utilities to groceries and entertainment. Don't forget to include any existing debts, such as credit card balances or personal loans.
Step 2: Improve Your Credit Score
Now that you have a clear picture of your financial situation, it's time to work on improving your credit score. While this step may take some time, it can significantly increase your chances of getting approved when you apply to get mortgages.
Pay Bills on Time One of the most important factors in your credit score is your payment history. Set up direct debits or reminders to ensure you never miss a payment on your bills, credit cards, or existing loans. Even a single late payment can negatively impact your credit score, so consistency is key.
If you're struggling to keep up with payments, contact your creditors immediately. Many will be willing to work out a payment plan or temporary arrangement to help you avoid missed payments. This proactive approach can help protect your credit score while you get back on track.
Reduce Existing Debts High levels of existing debt can make lenders hesitant to offer you a mortgage. Focus on paying down your debts, especially high-interest debts like credit card balances. Consider using the "debt avalanche" method, where you focus on paying off the debt with the highest interest rate first while making minimum payments on other debts.
Another strategy is to consolidate your debts into a single loan with a lower interest rate. This can make your debts more manageable and potentially improve your credit score by reducing your credit utilization ratio.
Register on the Electoral Roll If you haven't already, make sure you're registered to vote at your current address. This simple step can give your credit score a boost, as it helps verify your identity and address to potential lenders.
Avoid Applying for New Credit In the months leading up to your mortgage application, avoid applying for new credit cards or loans. Each application results in a hard inquiry on your credit report, which can temporarily lower your score. Too many recent credit applications can also make lenders wary when you're trying to get mortgages.
Step 3: Save for a Larger Deposit
When you're working to get mortgages with less-than-perfect credit, having a larger deposit can significantly improve your chances of approval. A bigger deposit reduces the lender's risk, which can help offset concerns about your credit history.
Set Savings Goals Start by setting a realistic savings goal based on the property prices in your desired area. While the minimum deposit for many mortgages is 5% of the property's value, aim for at least 10-15% if possible. The larger your deposit, the better your chances of getting approved for a mortgage and securing a more favorable interest rate.
Create a dedicated savings plan to reach your goal. This might involve cutting back on non-essential expenses, finding ways to increase your income, or both. Consider setting up a separate savings account for your deposit to keep these funds separate from your day-to-day spending money.
Explore Government Schemes The UK government offers several schemes designed to help people get mortgages and buy homes. These can be particularly helpful if you're struggling to save a large deposit:
Help to Buy: Equity Loan - The government lends you up to 20% (40% in London) of the cost of a newly built home, so you only need a 5% cash deposit and a 75% mortgage to make up the rest.
Shared Ownership - You buy a share of a property (between 25% and 75%) and pay rent on the remaining share. This can make it easier to get mortgages as you need a smaller deposit and mortgage.
Lifetime ISA - If you're between 18 and 39, you can save up to £4,000 per year into a Lifetime ISA, and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
Research these schemes thoroughly to see if any of them could help you get mortgages more easily.
Step 4: Research Specialist Lenders
When you have less-than-perfect credit, traditional high street banks may be less likely to approve your mortgage application. However, there are specialist lenders who focus on helping people with credit challenges get mortgages.
Look for Bad Credit Mortgage Providers Start researching lenders who specialize in bad credit mortgages. These lenders are more likely to consider your individual circumstances rather than relying solely on credit scores. They may offer options such as:
Adverse Credit Mortgages - Designed for borrowers with a history of missed payments, CCJs, or even bankruptcy.
Guarantor Mortgages - Where a family member or friend with good credit agrees to cover the payments if you can't.
Self-Employed Mortgages - For those who may struggle to prove steady income through traditional means.
Remember that these specialized mortgages often come with higher interest rates to offset the increased risk to the lender. However, they can be a good stepping stone to help you get mortgages now and potentially refinance to better terms in the future as your credit improves.
Compare Interest Rates and Terms When researching lenders, don't just focus on who will approve you. Pay close attention to the interest rates, fees, and terms each lender offers. Even small differences in interest rates can add up to significant amounts over the life of a mortgage.
Look beyond the headline rates and consider the overall cost of the mortgage. This includes any arrangement fees, valuation fees, and early repayment charges. Some lenders may offer fee-free options which could be beneficial if you're trying to keep upfront costs low.
Also, consider the flexibility of the mortgage. Look for features like the ability to make overpayments or payment holidays, as these could be useful in the future.
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Step 5: Seek Professional Advice
Navigating the mortgage market can be complex, especially when you have credit challenges. Professional advice can be invaluable in helping you get mortgages that suit your situation.
Consult a Mortgage Broker A mortgage broker can be a great asset in your journey to get mortgages. They have access to a wide range of lenders, including specialist lenders who don't deal directly with the public. Here's how a broker can help:
Access to More Options - Brokers can help you find lenders you might not have considered or even known about.
Understanding of Criteria - They know the specific criteria of different lenders and can guide you towards those most likely to accept your application.
Handling the Application - Brokers can manage the application process for you, potentially speeding things up and reducing stress.
Explaining Complex Terms - They can help you understand the different mortgage products and their terms.
When choosing a broker, look for one who is registered with the Financial Conduct Authority (FCA) and has experience working with clients with credit challenges.
Get Personalized Recommendations A good mortgage broker or financial advisor will take the time to understand your individual circumstances. They can provide personalized recommendations based on your credit history, income, deposit size, and future plans.
They may also be able to advise you on steps you can take to improve your chances of approval, such as paying off specific debts or waiting a certain period before applying.
Remember, while professional advice can be extremely helpful, the final decision on which mortgage to apply for should always be yours. Make sure you fully understand any product you're considering and feel comfortable with the terms before proceeding.
Conclusion
Getting a mortgage with less-than-perfect credit may be challenging, but it's far from impossible. By following these five steps – assessing your financial situation, improving your credit score, saving for a larger deposit, researching specialist lenders, and seeking professional advice – you can significantly increase your chances of success.
Remember, the journey to get mortgages is a marathon, not a sprint. Be patient with the process and persistent in your efforts. Even if you face initial rejections, don't give up. Keep working on improving your financial situation and exploring different options.
Lastly, once you do secure a mortgage, make sure to keep up with your payments and continue practicing good financial habits. This will help you build a stronger credit history, potentially allowing you to refinance to better terms in the future.
With determination and the right approach, homeownership can be within your reach, regardless of your current credit situation. Start your journey today, and take those first steps towards getting the mortgage that will help you achieve your dream of owning a home in the UK.
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