Homebuyers are missing on mortgage deals because they are under the impression that financial institutions will turn down their request immediately due to missed repayments, CCJs in their past record, according to ‘Which?’ analysis.
However, of late, the analysis has found there are currently over 1600 approved mortgage deals put in by bad credit buyers but with good income. It discovered that around 5000 residential mortgage deals were available in all to first-time buyers, with one in ten deals for those with a record of bankruptcy and one-third for bad credit buyers.
More than 33% of mortgage deals available on the market exclusively have made easier for bad credit borrowers to get on the property ladder, but direct lenders want them to have a bigger deposit size, at least 25%. First-time buyers with credit issues in the past are likely to be out of the race if they have the minimum deposit size (not more than 5%), the analysis further revealed.
Mortgages after CCJs can be approved but with tight conditions
A CCJ is issued when you fail to repay your debt and do not turn to barrages of emails, notifications, and messages thrown at you. It shows up on your report for six years even if you have settled your debt.
According to the market trend, direct lenders will allow you to get the deal provided you have a satisfied court judgment and had one CCJ in the previous year, and no more than three in past three years. However, your chances are still not greater if you have had your CCJ is worth £500 or more.
Not all types of mortgages are approved with bad credit
Majority of mortgage deals for bad credit borrowers are fixed-rate lasting between two and five years. If you are looking to get an interest-only mortgage, lenders will turn down your application.
The approval rate for such mortgages has fallen by 10% since 2013, according to Which? because lenders have introduced tougher eligibility criteria. Now, these deals are provided to only those who submit 50% of the value of their property and have £50,000 annual income.
Chances to get interest-only deals are higher in the buy-to-let market because rental income can cover monthly interest payments and you can sell your property to settle the debt at the end of the term.
Securing a residential interest-only mortgage deal is quite difficult, but they provide you with advantages that do not come with fixed-rate mortgage deals.
- Lower monthly installment
Interest-only mortgage deals require you to repay the only interest each month. You can easily manage your regular expenses with this obligation as you have to pay off the capital at the end of the mortgage term.
- Lower risk of debt building
Each month you have to pay the interest only, which means lower installment. Hence, there is a very low risk of falling behind repayments.
- Flexibility of overpayment
Interest-only deals also allow you to overpay reducing the amount of your loan. Your lender may charge overpayment fees.
How to get a mortgage with bad credit but good income
If your credit report shows missed repayments, you are likely to be turned down for a mortgage deal. A good income can hike up the chances, but you should consider the following tips too.
- Build your credit score
You should bolster up your credit score by making bills and debt payments on time. Make sure that your name is on the electoral roll, all credit card dues are clear, you do not max out your credit card and credit applications are very limited. These will be enough evidence to prove your mortgage lender that you have been responsible with repayments.
- Have a big deposit size
The higher the deposit size, the lower the loan-to-value, and the lower the risk lender will bear. Focus on having a minimum of at least 20% of the value of your property.
- Buy a cheaper home
The lower the property value, the lower the loan-to-value will be. In this situation, a lender may approve your application even if you do not have a larger deposit size.
In the nutshell, bad credit buyers can get a mortgage deal but they have to meet the criteria set by lenders. Try to build a good credit score and a big deposit size to avoid hurdles.