In the world of mortgages and loans, your credit history often acts as your financial passport.
It’s a comprehensive record of your financial behaviour, and lenders use it to assess the risk associated with lending to you.
But what happens if you have no credit history at all? Can you still get a mortgage?
This article aims to explore this question in detail, providing insights and guidance for those without a credit history.
Understanding Credit History and Credit Score
Credit history is a record of your borrowing and repayment activities.
It includes information about loans you’ve taken out, credit cards you’ve used, and whether you’ve paid your bills on time.
Lenders use this information to determine how likely you are to repay a loan. A good credit history can open the door to a variety of financial opportunities, including favourable mortgage rates.
However, not having a credit history can make these opportunities more challenging to access.
A credit score, on the other hand, is a numerical representation of your credit history.
Your personal score is based on several factors, including your payment history, the amount of debt you have, and the length of your credit history. A high credit score indicates that you’re a low-risk borrower, which will make it easier to get approved for a mortgage.
Challenges of Getting a Mortgage with No Credit History
Lenders use a borrower’s credit history as a key tool to assess creditworthiness.
Without a credit history, lenders find it difficult to gauge your risk as a borrower. This uncertainty can make them hesitant to approve your mortgage application, and increases the chances that your mortgage will be declined. After all, they have no evidence of your behaviour as a borrower (good or bad). It’s like trying to predict the outcome of a game without knowing the track record of the players.
Your lack of a credit history could be down to your age, if you are young then it’s likely you have not had much time to take out credit and build up a credit profile. But it could also be because you have managed your finances carefully and have never needed to borrow.
Either way, the consequences are that you have what’s known as a thin credit file.
Here are some specific challenges you might face when trying to get a mortgage with no credit history:
Lack of Trust from Lenders: Without a decent credit history, lenders have no way of knowing whether you’re reliable when it comes to repaying loans. A credit history provides a track record of your past financial behaviour, giving lenders confidence in your ability to repay a mortgage. Without this, lenders may be wary of offering you a mortgage.
Limited Options: Some lenders may flat-out refuse to offer mortgages to individuals with no credit history. This can limit your options and make it more difficult to find a mortgage that suits your needs.
Higher Interest Rates: If a lender does agree to give you a mortgage without a full credit history, they might offset the risk by charging a higher interest rate. This means your mortgage could end up costing you more over the long term.
Larger Deposits: Lenders may require a larger deposit to offset the risk of lending. This can make it more difficult to get onto the property ladder, particularly if you’re struggling to save for a deposit.
More Scrutiny: Without a credit history to rely on, lenders may scrutinise your financial situation more closely. This could involve looking at your income, employment history, and even your lifestyle and spending habits to assess your ability to repay the mortgage.
Issues with your credit file, or bad credit?
Get the help and advice you need, plus access to over 100 different lenders
Award winning service
Independent mortgage advice
FCA Regulated
Can You Get a Mortgage with No Credit History?
Despite the challenges, getting a mortgage with no credit history is not impossible.
It may require a bit more effort and strategic planning, but there are lenders and mortgage products out there designed to help individuals in this exact situation.
Some lenders are willing to consider other factors in lieu of a credit history. These might include your employment history, your income, and the size of your deposit. Essentially, they’re looking for evidence that you’re financially responsible and capable of meeting your mortgage repayments.
Employment History
A stable employment history gives a positive sign to lenders.
It shows that you have a regular income, which can be used to make your mortgage payments. If you’ve been in the same job or professional for a number of years, this can be particularly beneficial.
Income
Your income is a key factor in any mortgage application.
Lenders will look at your income in relation to the mortgage payments to ensure that you can afford to make them each month. If you have a high income to mortgage ratio, then this could help to offset the lack of a credit history.
Size of Deposit
The amount of money you’re able to put down as a deposit will influence a lender’s decision.
A larger deposit reduces the lender’s risk, as it means you’re borrowing less money. If you’re able to save a substantial deposit, this could help you to secure the mortgage you need.
Other Factors
Lenders may also consider other factors, such as your outgoings, any other financial commitments you have, and even your lifestyle.
They’re essentially trying to build up a picture of your financial situation without the aid of a credit history.
It’s important to note that while these factors can help, they don’t guarantee that you’ll be able to get a mortgage. Each lender has their own criteria and processes for assessing mortgage applications, and what works for one lender might not work for another. However, by understanding these factors and working to present your financial situation in the best possible light, you can improve your chances of getting a mortgage with no credit history.
30 day FREE credit report trial
Get The UK’S Most Detailed Online Credit Report
See your data from 4 Credit Reference Agencies, not just 1
Get an independent view with your checkmyfile Credit Score
View up to 6 years’ credit history
Easy to cancel – by Freephone or even online
A guarantee never to sell your personal data
Consistently rated ‘Excellent’ on Trustpilot
This is a 30-day free trial, and a recurring £14.99 thereafter unless the subscription is cancelled, which can be cancelled at any-time.
Improving Your Chances
If you have no credit history, there are several steps you can take to improve your chances of securing a mortgage. These strategies are designed to either help you build a credit profile or strengthen your financial position in other ways that lenders may find appealing.
Building a Credit History
The most straightforward way to improve your chances is to start building a credit history.
This can be done in several ways:
- Register on the Electoral Roll: This is one of the simplest ways to start building a credit history. It provides proof of your address, which lenders include as part of their verification process. (Am I on the Electoral Register?)
- Open a Bank Account: Having a UK bank account and managing it responsibly will help to demonstrate to lenders that you can handle money responsibly.
- Take Out a Credit Card: Consider taking out a low-value credit card and using it responsibly. This means making a few affordable purchases each month and then paying off the balance in full. This can show lenders that you can manage credit responsibly.
- Pay Your Bills On Time: Regularly paying your bills on time will also help to build a positive payment profile. This includes utility bills, mobile phone contracts, and even rent payments.
Saving a Larger Deposit
Saving a larger deposit will help in a few ways.
It reduces the lender’s risk, as it means you’re borrowing less money. It also shows lenders that you’re capable of saving and managing your money responsibly. By increasing your deposit, you will be lowering the loan to value percentage (LTV). This may give you access to some lower rate products. And of course, with a smaller mortgage your monthly repayments will be reduced.
Proving Your Income
Being able to fully prove all of your income can reassure lenders of your ability to meet your mortgage repayments.
This might involve providing payslips or tax returns. If you’re self-employed, you might need to provide business accounts or tax returns for the last two or three years. This might sound a bit obvious, but it’s common to have some elements of income that can’t easily be verified. These amounts will not form part of your affordability assessment.
Reducing Debt
If you have any existing debts (cards, loans), try to reduce them as much as possible before applying for a mortgage.
Lenders will consider your existing financial commitments when deciding how much they’re willing to lend you and this in turn reduces the amount of mortgage that could be available to you.
How to remove financial associations from your credit report
One aspect of your credit report that can have an impact is the presence of financial associations. These are links to other individuals, created when you jointly sign up for credit products.
Learn what they are, how they can affect you, how to remove them from your credit report
Why would you use a mortgage broker instead of a bank?
Whether you’re buying your first home, looking to change your mortgage, or have unique financial needs, it’s valuable to understand how a mortgage broker can help.
We’ll break down the advantages, making it clear and straightforward to see why choosing a mortgage broker could be the right move for your mortgage journey.
The Role of Specialist Mortgage Brokers
Specialist mortgage brokers can be an invaluable resource for individuals with little or no credit history.
They have a deep understanding of the mortgage market and have relationships with a variety of lenders, including those who are willing to consider applicants without a credit history.
Here’s how a specialist mortgage broker can assist you:
Understanding Your Situation: A specialist mortgage broker will take the time to understand your unique financial situation. They’ll look at your income, outgoings, employment history, and any savings or assets you might have.
Widest Range of Lenders: Brokers have access to over 100 lenders, including those who aren’t available on the high street. This means they can present you with options that you might not have found on your own.
Expert Advice: They can provide expert advice on how to improve your chances of getting a mortgage. They can guide you on how to build a credit history, how to save for a larger deposit, and how to present your financial situation in the best possible light.
Application Process: A mortgage broker can guide you through the process of applying for a mortgage, helping you to fill out application forms, gather necessary documentation, and liaise with lenders on your behalf.
Before applying for a mortgage with no credit history, spend time building up your credit profile.
Register on the electoral roll, keep your bills up to date, and consider using a low-value credit card responsibly.
And when you’re ready to apply for a mortgage, use a specialist mortgage broker to guide you through the process.
Ready to explore your options?
If you’re just about to start your mortgage journey and could use the guiding hand of a professional, don’t hesitate to reach out to a reputable mortgage broker.
An independent mortgage broker can access over 100 lenders on your behalf. They will make the process smoother and more profitable than going it alone.
Keep reading, keep asking questions. The more you know, the better decisions you can make.
Find a mortgage broker
Credit Report Guide
Understanding your credit report is an important step in maintaining your financial health and getting a lender to say yes.
Specialist Mortgages
Specialist mortgages can be very varied. From an unusual property, to multiple streams of income to using an SPV Company.
Mortgage Broker Guide
In this guide we’ll take a look at what mortgage brokers do, how they can help you, how they get paid plus tips on how to find a good one.
