The First Time Buyer Mortgages With Bad Credit Guide

illustration of The First Time Buyer Mortgages With Bad Credit Guide

Buying your first home is an exciting time, but the mortgage process can feel overwhelming if you don't know what to expect. If you have bad credit, you might be also worried about not getting accepted for a mortgage.

When you apply for a mortgage, lenders will check your credit history. Issues like CCJs and IVAs will carry more weight than missed or late payments. Lenders will also want to know the reasons for your bad credit, and will consider the circumstances around any negative issues such as the amount of money involved and how long ago it happened. 

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In this Guide, you'll find out information on first time buyer mortgages with bad credit, and tips for getting approved. There's also links to other helpful Guides with all you need to know about getting a mortgage with bad credit. 

Who is classed as a first time buyer?

Simply put, you’re known as a first time buyer if you've never previously owned a home or a buy-to-let investment. Most people aren’t in a position to purchase a property outright, so you’ll need to apply for a mortgage in order to buy your first home.

Can I get a mortgage as a first time buyer if I have bad credit?

Yes, you can still get a mortgage as a first time buyer, even if you have bad credit! But it can be more difficult compared to someone who has a better credit rating. You’re generally seen as a bigger risk, and some companies will turn you down flat if you have a negative credit history.

When it comes to having credit issues, it’s always the best option to face them head on. The first step towards that is to get an accurate, up-to-date and thorough look at your credit history and credit score. That’s why we always recommend checkmyfile over other credit checkers. Use our checkmyfile Explained Guide to answer any questions you have about checkmyfile and get your credit looking as good as possible for your first time buyer mortgage application. 

Even if you’ve been refused a mortgage by your bank or a high street lender, there’s specialist lenders who’ll consider you. But you'll need a mortgage broker to get access to these lenders - a specialist broker who will understand your situation and know the best options. 

I’m a first time buyer with a bankruptcy, can I get a mortgage?

Yes, you can get a mortgage as a first time buyer after you've been bankrupt. But it can be more difficult. The big banks will usually refuse to give you a mortgage if you’ve ever filed for bankruptcy. However, there are specialist lenders who will consider mortgage applications, so you do have options. 

You'll need to work with a specialist mortgage broker who understands your unique situation and has good relationships with specialist lenders. Most of these specialist lenders aren't available directly to you as a borrower, only offering their mortgages through these niche brokers. Read more about buying your first home after bankruptcy.

I’m a first time buyer with a CCJ, can I get a mortgage? 

Yes, you can get a first time buyer mortgage if you have a CCJ (County Court Judgement). But you'll need a specialist mortgage broker who can help you understand your options and find you the right lender. 

Usually, as long as your CCJ is satisfied – meaning that it’s been paid in full – lenders will be willing to offer you a mortgage. There are even some mortgage companies who might consider you  if the repayment on a CCJ is partially outstanding. 

Whether you get approved will depend on how long ago the CCJ happened, the total number of CCJs on your credit file, the value of the CCJ, whether it's been satisfied, the size of your deposit, and if you have any additional bad credit issues. Read more about buying your first home with a CCJ.

I’m a first time buyer with defaults, can I get a mortgage?

Yes, you can get a mortgage as a first time buyer with defaults. But it can be more complex compared to someone with a cleaner credit file. There are specialist lenders that are willing to lend to you. You’ll just have to meet their specific criteria. 

Different lenders view different kinds of defaults differently too. For example, if you’ve got a default on your mobile phone contract, most lenders won’t see that as serious as a default on a secured loan.

If you have other additional credit issues then your mortgage application will be more complicated. You should check your credit history to see what’s on there before you apply for a mortgage. And working with a specialist mortgage broker who’ll be able to advise you on your options. Read more about buying your first home with defaults.

I’m a first time buyer with an IVA, can I get a mortgage? 

Yes, you can get a first time buyer mortgage with an IVA, but it can be more difficult. Most lenders don't like IVAs because it indicates you've had past issues managing your money. So while it is more difficult, it's because a lot of the mainstream lenders won't consider you.

Luckily, there are specialist lenders who deal specifically with people who have or have been in an IVA. They'll look at your individual circumstances and current ability to make payments, as opposed to automatically refusing you.

As a first time buyer with an IVA on your credit file, you should speak to a specialist bad credit mortgage broker who has the right experience to help you. They’ll know the specialist lenders who’ll consider you and which ones will offer the most competitive mortgage rates. Read more about buying your first home with an IVA.

I’m a first time buyer with payday loans, can I get a mortgage?

Yes, you can get a first time buyer mortgage after a payday loan. But it will affect how likely a lot of lenders will be to consider you, especially if you have other issues on your credit file.

Lenders don't like payday loans because they think it means you’ve had financial issues in the past, and therefore might not be able to keep up with mortgage repayments. 

But just because some mainstream lenders will refuse you, doesn’t mean all lenders will. Some specialist lenders are more likely to look at your individual situation, rather than turn you down on the spot. They’ll often look at how long ago the last payday loan was taken out. They'll be less likely to accept you if it's recent, but if it was years ago, that will work in your favour. Read more about buying your first home with a payday loan.

You can read more about getting bad credit mortgage in our Guide: How to Get a Mortgage With Bad Credit

What is the process of applying for a mortgage for the first time?

The first thing to do when applying for a first-time mortgage is to ensure you look as good as possible to potential lenders. It’s a good idea to find out what your score looks like currently so you’ll know what steps you need to take to improve. We recommend using checkmyfile. It's the UK's most detailed and trusted credit report. It's been around for over 20 years helping people understand the credit history system. 

After you’ve got your credit in order (like correcting any mistakes or updating your current address), you'll then need to find the right mortgage for you with the best interest rate. The entire process can feel very overwhelming, especially if you have bad credit. We always recommend working with a mortgage broker who knows the whole of the market and is experienced in getting the best mortgage deal possible for people just like you. 

Specialist lenders offer bespoke mortgages, including products for first time buyers with bad credit scores. These mortgages are often underwritten especially for you and your specific situation. Specialist lenders consider people on a case-by-case basis, and are experts in providing tailored mortgages for people in difficult financial circumstances.

These specialist lenders typically aren’t the big names you know like the high street banks. And their mortgages aren't usually available directly to you as a borrower, you'd need to go through a specialist mortgage broker.

A specialist mortgage broker can find the best mortgage for you at the best rates, and prepare your application so it looks as good as possible to a lender. They'll hold your hand every step of the way, and guide you through the whole process.

How much will I need to save to buy my first home?

As a first time buyer, you’ll need to put down some money upfront, known as a deposit, which goes towards the cost of your new home. The size of this deposit can vary, but is typically around 5-20% of the cost of the property. So if you found a house for £200,000, you'd need to save at least £10,000 for a deposit.

Lender’s deposit requirements vary between cases. If you have bad credit, you may be asked to put down more money upfront to offset the risk you pose. This isn’t always the case though, but you’ll need the help of a mortgage broker to help you get the best deal. 

Help to Buy and Shared Ownership for first time buyers

If you're struggling to save enough deposit for the type of home you want, there are some government schemes in the UK that can help. For example, the Help to Buy equity loan allows you to borrow between 15% and 40% of the value of the property you want to buy.

There’s also the shared ownership scheme, which allows you to buy a smaller share of a house and pay rent on the rest, which requires a smaller deposit.

Guarantor mortgages for first time buyers

If these schemes aren't an option, you can look into something called a guarantor mortgage. This is where another person (usually a close friend or family member) agrees to pay your mortgage if a time comes when you can't. They aren't named on the mortgage, but the responsibility falls to them if you can't make your payments.

This is a serious commitment for the person agreeing to be your guarantor. But if you have someone you truly trust then it can be a great option. If you're worried about bad credit and don't have a big deposit to put down then a guarantor mortgage is a good option to look into.

Right to Buy for first time buyers

If you’re currently a council tenant in England, you could qualify for the Right to Buy scheme. The scheme gives you the opportunity to purchase your current council home for a discounted price. Most mortgage lenders will use your discount as a deposit, meaning you don’t have to save up a lot of money. 

What are the advantages of being a first time buyer?

Buying a home for the first time can be overwhelming, but there are benefits to being a first time buyer:

There's finance schemes available to you

As a first time buyer, you have some good finance options available to help you buy your first home. Schemes such as Help to Buy exist specifically for would-be homeowners, and allow you to put down a smaller deposit on a new-build home.  

You're chain-free

As you don't have an existing property to sell, you've got an advantage over homeowners. If you put an offer on a house, this could work in your favour if the seller wants a speedy sale!

You qualify for a stamp duty discount

As a first time buyer, you won't pay stamp duty for homes up to £300,000 (or up to £500,000 until 31st March 2021). Making for a nice saving at what is typically an expensive time. 

What do lenders look for in first time mortgage applicants?

Mortgage lenders have different criteria that they use to assess you when you apply for a mortgage. But generally they’ll look at the following factors:

  • Your income – your regular cash flow, including payslips and accounts if you’re self employed

  • Your credit report – they’ll prefer a positive credit history

  • Your assets – anything else which could give you financial stability

  • Your deposit – how much money you can put down up front

What do I need to provide for my first mortgage application?

For your first mortgage application, you’ll need to provide:

  • Payslips from your employer (the last 3 months is usually sufficient) or recent accounts if you’re self-employed 

  • Two or 3 months of bank statements

  • Proof of deposit

  • Proof of identity and address

  • Proof of any assets

What do mortgage lenders look at on my credit history?

Your credit history is an important factor that lenders will consider when looking at your mortgage application. This can be especially daunting if you have a low credit score. They’ll be checking for a positive credit history and trends to see how well you handle your finances.

When checking your credit, mortgage companies mainly look at:

  • Your credit history – how much you’ve borrowed, how much you still owe, and your repayments

  • Whether you’ve had any county court judgements (CCJs) or ever been declared bankrupt

  • How much credit you’re using out of what’s available to you

  • Whether you’ve ever missed any payments

Most mortgage lenders will want you to have an acceptable credit score before they’ll be willing to offer you a mortgage. However, there are specialist mortgage companies who will consider you with a very low or even no credit score if you've not managed to build a credit history yet.

If you need a mortgage but are worried about your credit score, the door of your first home isn’t necessarily closed to you. You’ll probably just need a specialist mortgage broker to get you the right mortgage. Get matched to your perfect mortgage broker by making an enquiry

How far back do mortgage lenders check?

Lenders will need to know you can afford your mortgage repayments without struggling. They'll usually check your last 3 months payslips. They'll also want to check your bank statements (usually the last 2 or 3 months) to see your spending habits and how you manage your money.

Lenders will check your income, your regular payments, and transaction histories. From this, they'll measure your outgoings against potential repayments to see if you can afford them. If you’re self-employed, you may also have to provide up to three years' worth of accounts to prove your income is stable.

Being regularly overdrawn or a record of payday loans will be red flags to lenders. If you’re planning to apply for a mortgage in the next three months, try to avoid any bad habits in the months leading up to your application.

Find a house first or get a mortgage first?

Generally, you don’t need to apply for a mortgage until you’re ready to buy a house. But it can be a good idea to have a look at your options to get an idea of what you’re going to be able to afford.

If you’re thinking about buying a home and have bad credit, it's best to speak to a mortgage broker who can advise you on your options, especially if you have a negative credit history. By doing this, you can get something called a 'mortgage in principle', which tells sellers and estate agents that a lender is willing to lend you the money. Sometimes referred to as a 'decision in principle', it can make your offer more likely to be accepted on a property. Find out how much you could borrow on a mortgage with our Mortgage Affordability Calculator.

What other costs do I need to consider as a first time buyer?

On top of your deposit, which is usually at least 5% of the purchase price, you’ll have other costs you’ll need to factor in when looking to buy your first home:

  • Building survey fee

  • Solicitor's fee

  • Removal company cost

  • Building and contents insurance

  • Mortgage broker fee

  • Mortgage arrangement and valuation fees; and

  • Stamp Duty if applicable

Tips for getting your first mortgage accepted with bad credit

Getting a mortgage for the first time is an overwhelming process, and it can be even more daunting when you're worried about your credit score. The good news is it's definitely possible to get a mortgage, even with a negative credit history. Here are some steps you can taker to improve your chances of getting your application approved:

1. Make quick fixes to your credit score

First thing to do is to check your score to see where you stand. We recommend using checkmyfile as it gathers your information from all the big credit agencies in the UK. You should then run through your report in detail and to ensure there's no outstanding issues which are bringing your score down. Some quick fixes include making sure you're on the electoral roll at your current address, correct any errors, and close any joint accounts you don't need.

2. Try a bigger deposit

It's not an option for everyone, but putting down a bigger deposit can help you look less risky to potential lenders if you have a negative credit history. You can also look to take advantage of the schemes previously mentioned in this Guide, such as Help to Buy, Shared Ownership, and Right to Buy.

3. Get your finances in order

This is a big one if you're self-employed. Mortgage companies will usually ask for at least two years of audited accounts as part of your application, and they may expect a bigger deposit. By giving your finances a health check you'll be able to present your income and affordability clearly.

4. Take your time

Don't rush to submit a mortgage application, and if you've been turned down then take your time and consider your options before applying to another lender. A rejected mortgage application can really hurt your credit score, and if it's already low then that's the last thing you need. It's worth getting help from a mortgage broker who will be able to help you with your application and make it look super appealing to lenders.

5. Get help from a mortgage broker

Your first home is likely to be the biggest purchase you ever make. It's sensible to get expert advice from someone who knows the market and has experience getting mortgages for people in your situation. There are specialist mortgage brokers who deal specifically with people with bad credit. Our platform uses a clever algorithm to match you to the perfect bad credit mortgage broker for your unique situation. Someone who’s up for the challenge, and has a proven track record of making bad credit mortgages possible for people like you. Make an enquiry

WE MAKE MORTGAGES POSSIBLE

Over 50% of mortgages for people who are self-employed or have bad credit aren’t available directly to you. They’re only available through specialist brokers. Using our platform guarantees you’ll be matched with a broker who has a proven track record of making mortgages possible for people like you. Less processing, more understanding.

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