As interest and mortgage rates rise, mortgage providers are becoming stricter when it comes to who they will and will not lend to. This means that anyone who has adverse credit might find it difficult to get mortgage approval.

But new industry insight from Revolution Brokers shows that people with adverse credit can increase their chances of being approved by lenders by taking some simple, practical steps in the right direction. 

What is adverse credit?

When you apply for a mortgage, lenders will scrutinise your credit history. If you have a good history of borrowing and repaying loans on time and in full, your credit history will be good and lenders will see you as a reliable customer. But, if you’ve got a bad, or adverse credit history, they are more likely to hesitate because they can’t be sure that you’ll repay the loan as promised.

Types of adverse credit

Numerous factors can contribute towards adverse credit and thus cause lenders to label you as high risk. Here are some of the most common.

Defaults

Defaults, or missed payments, refers to failing to pay money you owe on time. It could be that you’ve missed phone or utility bill payments, or that you’ve failed to meet the deadline for an instalment repayment on a loan. 

Debt management plans

When someone finds themselves in severe debt, they may be issued with a debt management plan. These plans allow you to, for example, repay debts through more affordable, very long-term instalments. However, such payments will often be labelled as defaults on the person’s credit history, thus leading to adverse credit. 

County court judgements (CCJs)

If someone falls into debt, it might reach the point where a court has to order them to repay the outstanding amount. When this happens, it wreaks havoc on their credit score. 

Bankruptcy

If someone has bankruptcy on their record, it’s very unlikely that a high street lender will approve them for a mortgage. Some specialist lenders might still consider granting a loan if the bankruptcy was over six years ago and it can be proven that the person has made good financial improvements ever since.

Can I get a mortgage with adverse credit?

In short, the answer is yes – you can get a mortgage with adverse credit, but it’s not easy and your options might be limited. 

• First, you need to do everything you can to improve your credit history and prove that any previous problems that caused your poor credit have now been improved on. Making sure your household bills are paid on time for a few months is a great way to start the repair process.
• If there is a specific and reasonable explanation for your adverse credit – especially one that no longer affects you – you can add a note of correction to your credit report to let lenders know. For example, if a redundancy or illness was what led you to miss bill payments for a while, lenders might take a lenient view. 
• You need to prove that you know how to spend your money responsibly. So it’s good to set yourself a tight budget in the months leading up to a mortgage request. 
• It’s also possible for a guarantor to help you get a mortgage. This is a person with good credit who promises to cover you financially should you ever be unable to repay the loan. 
• If you’re buying with a partner, it’s possible that their good credit will be enough for the lender to overlook your own bad credit. 
• It’s possible to improve your credit score by proving that you can reliably repay credit loans. To do so, it’s a good idea to take out a credit card and use it once a month to do a supermarket shop and instantly pay off the card from your current account. Over the months, this reliable pattern of borrowing and repaying will improve your credit score considerably. 
• If none of this is helping persuade lenders that you are trustworthy, it might be wise to take a step back and wait for a while. Blemishes on a credit score can appear less serious as time passes, especially if you have managed to improve your financial situation in the time since. 
• Most importantly of all, you’ve got to be honest with mortgage providers. If you try and hide adverse credit, the consequences are far worse than if you simply acknowledge the problem and prove that you are working hard to fix it. 

Founding director of Revolution Brokers, Almas Uddin, comments: “In any period of economic instability we’re always going to see mortgage lenders tighten their belts and this means those with adverse credit are likely to find it much harder to negotiate the process of securing a mortgage.”

“But there’s no need to lose hope because bad credit can be repaired. It might take time, considerable effort and sacrifice, but if you’re hoping to buy a property, it’s more than worth the effort.”

He adds: “Mortgage providers aren’t in the business of refusing to lend money – they want to give you a mortgage but when the economy is struggling they have to be more cautious than usual. So, if you can show signs of improved financial circumstances and good money management, you still have a good chance of securing a mortgage and getting a foot on the property ladder.”