Applying for a joint mortgage can become complicated when one applicant has a history of bad credit.
Lenders have varying perspectives on credit issues, making it essential to understand the potential impact on your mortgage application. However, having bad credit doesn’t necessarily mean you can’t secure a joint mortgage. By taking the right steps and seeking expert guidance, it is possible to increase your chances of obtaining a mortgage with the best terms.
In this guide, we will explore the strategies and considerations involved in getting a joint mortgage when one of you has bad credit.
Getting a mortgage when one person has bad credit
Getting a mortgage when one applicant has bad credit is still possible, although, it’s not always plain sailing.
Many mortgage lenders reject applications from individuals with poor credit, while others may accept the application but impose higher interest rates and demand a larger deposit. To increase your chances of getting a joint mortgage, it is advisable to work with a mortgage broker who specialises in assisting borrowers with adverse credit issues.
Reasons for Applying for a Joint Mortgage
One of the primary motivations for applying for a joint mortgage is to enhance affordability. When determining your borrowing capacity, lenders consider the income of all applicants. This means that by applying jointly, you can borrow more money.
Additionally, if you are married or have significant financial ties with another person, you may be required to apply for a joint mortgage. Many lenders do not permit individuals who are married or plan to live with a partner to apply for a single mortgage.
In this article we explain: How do joint mortgages work?
Challenges of One Applicant Having Poor Credit
Your credit history goes back six years and reflects your ability to make timely mortgage payments based on your past repayment behaviour. Lenders consider the credit reports of all applicants in a mortgage application.
When evaluating creditworthiness, mortgage lenders scrutinise any credit issues from both applicants’ reports. Typically, even if one applicant has a good credit rating, the presence of another applicant with a poor credit history can adversely affect the overall assessment. Although, in some cases, if one applicant has an exceptionally strong credit score, it may partially offset the impact of the poor credit history.
However, in most situations, if one applicant has bad credit then it will have a negative impact on the mortgage application. This could mean less options and a higher rate of interest.
What’s your credit status?
If you’re concerned about you or your partners credit history then the first thing to do is get hold of your credit reports.
There are no joint reports, everyone has their own individual profile.
You can easily do this by approaching credit reference agencies that offer online credit reports, such as Experian or Equifax. Online provider CheckMyFile can access three credit reference agencies at once.
These reports provide an overview of your credit history and basic details, along with some guidance on improving your credit score.
However, it’s important to note that mortgage lenders have access to additional information beyond what is included in these reports when conducting their own credit checks.
Credit Checks by Mortgage Lenders
Mortgage lenders have their own methods of performing credit checks, which involve assessing information from credit agencies and other financial sources. They will employ extra internal calculations to assign their own score to your creditworthiness. This score plays a crucial role in their decision-making process regarding lending and the mortgage deals they can offer.
Impact of Credit Checks on Your Credit Score
Soft credit checks do not affect your credit score and are only visible to you. Many lenders conduct soft credit checks during the decision in principle stage of the mortgage process.
On the other hand, hard credit checks leave a trace on your credit record. While all lenders eventually perform hard credit checks, many do so at the full application stage. Accumulating numerous hard credit checks within a short period will have a negative impact on your credit score.
Checking your own credit report does not affect your credit score, and it’s a good idea to do this once a year.
How Bad Credit Influences a Mortgage Application
Bad credit can have varying effects on your mortgage application, depending on the type and severity of the credit issues. The primary concern is that having poor credit increases the likelihood of your application being rejected but there are other consequences.
It’s important to note that the impact of bad credit can vary between lenders, and specialist lenders may be more flexible in accommodating applicants with poor credit.
Lending Criteria
Mortgage lenders often have specific criteria for joint mortgage applications with bad credit.
They may require longer financial records or more detailed information about the circumstances surrounding your poor credit history. Borrowing capacity may also be limited compared to applicants with better credit ratings.
Deposit
Applicants with poor credit histories typically face higher deposit requirements from most mortgage lenders.
The deposit amount may range from a minimum of 10% to 25%, depending on the lender’s policies. However, working with a specialist lender may provide opportunities for a loan-to-value (LTV) percentage that aligns more closely with standard mortgages.
Interest Rate
Individuals considered higher risk, including those with poor credit history, are often assigned higher interest rates on their mortgages.
This means your interest rate may be higher than expected, affecting the overall cost of your mortgage.
Specialist Mortgages
Fewer lenders are willing to offer subprime mortgages to individuals with poor credit, especially for higher-risk mortgage types.
This includes properties with a potential decrease in value, such as non-standard construction or new build properties, as well as situations like shared ownership.
Types of bad credit
Applying for a joint mortgage when there’s a history of bad credit can be a complex process.
Here are some common credit problems and their potential impact:
Absence of Credit History: A non-existent credit history may not display any negative aspects, but it also fails to provide evidence of your reliability in making monthly payments. A credit history is crucial to demonstrate that you’re not a risk, giving the lender confidence in your ability to repay the loan.
County Court Judgements (CCJs): CCJs can leave a lasting impact on your credit history. Lenders often consider the timing and value of the CCJ. While most prefer that it was settled with no subsequent credit issues, some may offer a joint mortgage even with recent or unsettled CCJs. In such cases, a specialist lender will be required.
Individual Voluntary Arrangement (IVA): IVAs can complicate mortgage applications, and it’s likely that the IVA needs to be fully paid off. The further in the past the IVA was, the easier it becomes to secure a mortgage. Some lenders may outright reject applications with any IVA records, but specialist lenders will look to accommodate these cases. Some may even accept applications if the IVA is ongoing, provided it will be cleared before the mortgage term ends.
Defaults: Securing a joint mortgage with defaults on your credit history can be difficult, depending on the nature of the default and its timing. Minor defaults may not deter most lenders, but some can restrict your mortgage options.
Late or Missed Payments: The impact of missed payments diminishes over time. A single missed payment over a year ago will have less effect than multiple or recent missed payments. Some lenders may wish to discuss the missed payments before proceeding with your application, particularly if there are multiple instances.
Bankruptcy: Bankruptcy is a significant issue, and many lenders won’t consider applications until a substantial period has passed since the bankruptcy has been discharged. This could lead to stricter mortgage terms, such as higher interest rates or fees and a larger minimum deposit requirement.
Repossession: House repossession is viewed as a major issue by lenders as they’ll want to avoid a repeat occurrence. However, if the repossession was long enough ago, some lenders may still be willing to help.
Applying with a Single Borrower
To navigate the challenge of an applicant having bad credit, one option is to apply for the mortgage with only one borrower, specifically selecting the person with the better credit rating.
This approach can increase the likelihood of getting an approved mortgage application and potentially provide access to better terms, including lower interest rates, more favourable affordability calculations, and a lower deposit requirement.
It’s important to note that when applying with only one borrower, the affordability assessment will be based solely on the income of that individual. This may make it more difficult to demonstrate affordability for the desired property. However, it can be a preferred course of action to ensure mortgage approval, even if it means a lower borrowing amount.
You will probably want to seek some legal guidance before deciding. Usually only those people named on the mortgage are the property owners.
It’s worth mentioning that some lenders do not permit sole applications for married couples or couples living together in the property.
Opting for a single borrower with good credit also allows you to approach regular lenders.
This can be advantageous since specialist mortgage lenders have higher interest rates and deposit requirements in general. Furthermore, by having a single borrower with good credit, you are more likely to access different types of specialist mortgages. Many lenders are hesitant to take on the combined risk of issues like bad credit along with shared ownership or non-standard construction mortgages.
Improving Your Credit Status
A strong credit rating is essential when applying for a mortgage, as it significantly impacts your eligibility and the terms you can secure.
If your credit rating is less than ideal, the good news is that there are steps you can take to improve it before applying for a mortgage. By actively addressing outstanding debts, allowing time for credit events to pass, and practicing responsible credit management, you can enhance your creditworthiness and increase your chances of success.
Settle Outstanding Debts and Defaults
One of the most crucial steps in improving your credit rating is addressing outstanding debts and defaults. Prioritise repaying these before applying for a mortgage. By satisfying these financial obligations, you demonstrate responsible financial behaviour and positively impact your creditworthiness.
Allow Time for Credit Events to Pass
If your credit issues involve County Court Judgements (CCJs), Individual Voluntary Arrangements (IVAs), or recent bankruptcy, it’s important to allow enough time to elapse before reapplying for a mortgage. Lenders typically prefer that these events are further in the past. Waiting for an appropriate time frame enables your credit history to reflect a more favourable outlook. This will expand your mortgage options and possibly lower the cost.
Practice Responsible Credit Management
Improving your credit rating requires consistent and responsible credit management. Here are some key actions to consider:
- Make Timely Payments: Pay all your bills, loans, and credit card balances on time. Late or missed payments negatively impact your credit rating.
- Keep Credit Utilisation Low: Aim to keep your overdraft and credit card balances well below the credit limits. High utilisation suggests potential financial strain and can negatively affect your credit score.
- Minimise New Credit Applications: Avoid applying for multiple new credit accounts within a short period. Each application generates a hard enquiry on your credit report, which can temporarily lower your credit score.
Seek Guidance from Credit Counsellors or Financial Advisers
If you need some help, working with credit counsellors or financial advisers can be highly beneficial when seeking to improve your credit rating. They can provide personalised guidance and tailored strategies to address your specific credit challenges. These professionals can help you create a comprehensive plan to improve your creditworthiness and set you on a path toward a stronger financial profile.
Be Patient and Persistent
Remember that improving your credit rating takes time and persistence. Consistently practicing responsible credit management and addressing outstanding issues will gradually enhance your creditworthiness. Stay committed to your financial goals and be patient throughout the process.
By taking proactive steps to improve your credit rating, you increase your chances of securing a mortgage in the future. A higher credit rating not only improves your eligibility but also opens up more favourable terms and options for your mortgage.
Understanding the Causes of Bad Credit
Bad credit can affect anyone, and there are various factors that can contribute to its development. Life circumstances, financial challenges, and mismanagement of credit can all lead to a deterioration in your credit history.
Here are some common causes of bad credit:
Life Events
Unforeseen life events such as illness, divorce, or job loss can disrupt your financial stability and lead to missed or late bill payments. These incidents can impact your credit score, especially if they result in defaults, CCJs, IVAs, debt management plans (DMPs), or even bankruptcy.
Poor Financial Decisions
Making poor financial decisions, such as relying on payday loans or applying for multiple credit cards simultaneously, can negatively impact your credit score. These actions can raise concerns among lenders, as they may view such behaviour as a sign of financial instability.
Risk Perception
When you have bad credit, lenders consider you to be a riskier borrower compared to those with good credit. This perception can make it more challenging to secure a mortgage with competitive interest rates and favourable terms. If your credit is exceptionally poor, you may even face outright rejection from some mainstream lenders.
It’s important to understand that while bad credit can make the borrowing process more difficult, it’s not an insurmountable obstacle. There are specialised lenders who cater to individuals with poor credit, offering alternative solutions and options to help you secure a mortgage despite your credit challenges.
Working with a Specialist Mortgage Broker
When you have bad credit, enlisting the help of a specialist mortgage broker can be a game-changer. These experts have in-depth knowledge of the market and access to lenders who are willing to consider your unique circumstances. Here are several reasons why partnering with a specialist mortgage broker is highly advantageous:
Simplifies the Mortgage Application Process
Applying for a mortgage can be overwhelming, especially if you have bad credit.
A specialist mortgage broker will alleviate much of the stress by guiding you through the entire journey, from initial application to completion. They are well-versed in the complexities of the mortgage process and will ensure that all the necessary paperwork is in order, making the experience more streamlined and less daunting for you.
Access to a Wide Range of Mortgages
Working directly with lenders may limit your options, particularly if you have bad credit.
However, a mortgage broker has access to a broader network of lenders, including those who specialise in assisting borrowers with credit issues. They can help you explore a wider range of mortgage products and find the ones that align with your specific needs and financial situation.
Acts as Your Advocate
When dealing with lenders, having a mortgage broker as your advocate can be invaluable.
They will represent your interests, communicate with lenders on your behalf, and negotiate terms that work in your favour. Their expertise and professional relationships enable them to present your case persuasively, increasing the likelihood of approval and securing competitive mortgage terms.
Expertise in Complex Situations
Specialist brokers excel in handling complex situations, including those involving bad credit and debt.
They possess the knowledge and experience to navigate the intricacies of your unique circumstances. Whether you have CCJs, IVAs, or a bankruptcy in your credit history, a skilled broker can identify suitable lenders and present your application in the most favourable light to increase your chances of approval.
Speeds up the Mortgage Process
With their industry connections and understanding of lender requirements, a specialist mortgage broker can expedite the mortgage application process.
They will efficiently gather and organise the necessary documents, liaise with lenders on your behalf, and keep the process moving forward. This can save you time and help you secure a mortgage in a more timely manner.
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