What are my mortgage options with a bad credit score?
You've seen the house of your dreams. You like its price and know you can afford the mortgage repayments. But there's a devil on your shoulder and he's whispering: what about your credit score?
Your heart sinks. Given another life, you'd do things different. You'd have paid those bills on time, or shown more restraint. And — on a contractor's income — you'd breeze the mortgage application.But in this life, you have encountered financial problems. And the worst of it? You're not even aware of what lenders see when they look at "your data self".
You think you've got a low credit score but, "so what?", you might think. With any luck, you might scrape through the application, right?
And bank's running a credit check or two can't do you any more harm, can it?
If those checks come back rejected, yes: they can cause you all sorts of problems!
What are contractors' chances of getting a mortgage with bad credit?
Since the credit crisis in 2008, the UK boasts more self-employed workers than ever. This massive shift in the labour workforce forced lenders to change their attitude.
Some lenders — not all — now tailor mortgage lending criteria to independents. Freelancers, contractors, consultants and other professionals need mortgages, too.
But what choice have independents had since the FCA banished self-cert mortgages? In truth, little; many (no, most) lenders were slow to come up with an alternative.
A handful have developed bespoke lending criteria in recent years. But before you know if you meet those criteria, you need to know what you're up against.
Credit checks, CCJs and Default Payments
Credit checks are like Dementors sucking away at your chances of getting a mortgage if you have:
- unsatisfied CCJs (a CCJ stays on the register for six years from date of judgement);
- missed mortgage or rental payments;
- defaults on your Council Tax;
- credit cards maxed out or in arrears.
If this is you, your credit history (be honest): it's seen better days.
The question is, will a mortgage lender be receptive to the new you? Can they gamble, ignore your past and see what you can afford now?
In short, they can't. Not altogether.
Subprime lending and higher-risk applicants
No mortgage lender has the power to "overlook" a poor credit history. Those missed or late payments and maxed out credit cards are etched into your score for all to see.
But the market has become less averse to imperfect credit profiles in recent years. Yes, subprime contractor mortgages do exist for contractors with adverse credit history.
Buying a home with adverse credit is no longer an impossible dream. Those past financial misdemeanours needn't haunt you forever, not any more.
Today, you can get a mortgage with a poor credit rating. Lenders can offer higher-risk applicants what the market defines as "subprime lending". Subprime rates are higher than prime lending due to the creditor's envisaged borrower risk.
But there are caveats to getting a loan on bad credit terms.
Are there any bad credit mortgage lenders for the self employed?
Not all lenders insist on perfect credit, but some are sympathetic. Some offer bespoke lending criteria for people with low credit scores…
…but here's the rub.
You are a limited company freelancer or contractor. At the best of times, you struggle to get a High Street lender to see your affordability.
So how do you pull off the double whammy?
How can you get a mortgage with bad credit history and as an independent professional?
No Excuses for Not Checking Your Own Credit Score
Experian is now "free forever". You can download an app from ClearScore. CheckMyFile and Equifax offer free trials before charging a nominal monthly subscription.
You'll see yourself as lenders see you. Your report will show the basics: your electoral roll entry and all-important 'score'. They'll show you what credit shows as adverse, even some you may not even realise count.
And for those you don't recognise, you'll be able to check identity fraud. You should. It happens to people every day, even the most diligent or at the most innocuous level.
What to do now that you you see what creditors see
Once you've checked your report, you must take action. Even if it shows you a mountain to climb, start with small steps. Tackling one element is better than none. Or worse, letting your score slide further.
Here's what to look for and the action you must take to become creditworthy:
- make sure the information on your credit report is correct (addresses, accounts, etc);
- ensure you're registered on the electoral roll at the right address;
- close down credit cards or bank accounts you no longer use;
- don't rush into unnecessary credit searches, which can be to your detriment;
- get together at least a 10% deposit for your eventual mortgage application;
- use a specialist mortgage broker who'll base your affordability on your contract rate.
When you have accomplished that list, use our calculator to get a guide to what you might be able to borrow:
Contractor Mortgage Calculator
How much can I borrow on my daily rate?
Potential Borrowing = £
Contractor- and Credit-Amenable Mortgage Lenders
Today, the situation has improved, even if it may not seem so on the High Street. And that's kind of the point.
Your limited company payment structure alone puts an inexperienced adviser on high alert. Throw in imperfect credit and you're setting yourself up for painful rejection.
You need a broker who knows both how you work and an amenable lender. That's where we come in.
We work in partnership with smaller specialist lenders who've adopted a positive stance. A select few offer mortgages for contractors with poor or adverse credit.
We now work alongside lenders like Kensington, Kent Reliance and Bluestone Mortgages. Accord mortgages are also willing to consider cases as long as the LTV is not above 85%. They all assess contractors with adverse credit and poor credit scores on their day rate.
This is a huge, if not unprecedented, step forward. Now it's time for you to fill your boots.