Getting a Mortgage as a First-Time Buyer With Bad Credit

In this article we look at why having bad credit as a first-time buyer isn’t always a deal-breaker. In fact, obtaining a mortgage with a low or poor credit is achievable for many prospective first-time homeowners, depending on their broader circumstances.

Whether you’re a first-time buyer with credit issues, or simply have no credit history at all, we look at how to boost your chances of being accepted for home finance.

Are bad credit mortgages available to first-time buyers?

Yes, it’s possible. However, it depends on the severity of your bad credit, your broader financial circumstances, and which lender you approach. Some lenders look at your credit score, whereas others take a more holistic look at your whole credit file. The good news is, this means there is no minimum credit score required to get a mortgage as a first-time buyer.

However, it’s important to choose the right type of lender for your circumstances if you’re looking to take out your first mortgage and have poor credit. We can set up a free, no-obligation chat with a broker who specialises in bad credit mortgages for first-time buyers, to help you find the right type of lender for your specific needs.

Are some types of bad credit worse than others?

Yes, there are certainly types of bad credit issues that are perceived as worse than others. It’s also important to note that not all lenders assess ‘bad credit’ (which is to some degree an ambiguous term), in the same way.

Most lenders use a sliding scale to determine the severity of your credit issues, but keep in mind that the age, size and reason for the issue can be equally as important as the type. While there is some variation by lender, types of bad credit can generally be grouped as such:

• Minor credit issues which can often be accepted: No credit history, Late payments

• Moderate credit issues which are less severe over time: Missed payments or defaults, County court judgements

• Severe credit issues that many lenders will not accept: Debt management plans, debt relief orders, Individual voluntary arrangements

• Very severe credit issues that make it hardest to find a lender: Bankruptcy, Repossession

What if you have no credit history?

As a first-time buyer with no credit history you won’t be alone. Those buyers coming straight from their parent’s homes who have never paid bills or taken out a credit card may not have a credit history at all.

Lenders understand that having limited or no credit history does not necessarily mean that the borrower will be a liability and this is not often seen in the same way as bad credit. However, it can improve your options if you build up a credit record prior to making a mortgage application.

You’ll want to look like a responsible borrower, so the following actions are recommended:

• Ensure your name is listed on the electoral register

• Take out a mobile phone contract in your name and maintain timely payments

• Get a credit builder credit card to make small purchases and repay the balance on time and in full each month

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How much deposit will you need?

First-time buyers typically need at least 5% deposit, but if you have bad credit, it’s likely that you’ll need more. Some lenders will have a deposit requirement of 15-20% for those with little or poor credit.

However, not all lenders require this level of deposit, and there may be low deposit mortgages available to you, depending on your broader circumstances.

While it might be difficult to get a 100% LTV mortgage as a first time buyer with bad credit, you may qualify for a guarantor mortgage, which sometimes allows buyers to borrow 100% of the property value.

Some lenders may also offer 95% mortgages for first time buyers with bad credit, if the credit issues are at the minor end of the scale, or happened 3 or more years ago.

Who are the best mortgage lenders for first-time buyers with bad credit?

Those lenders who are generally more open to borrowers with credit issues are likely to be the same as those available to first-time buyers with poor credit. This tends to be specialist bad credit lenders, however, there are high street banks who consider less severe credit issues.

Brokers who specialise in bad credit mortgages, like ourselves, can help you to find the most suitable bad credit lender for your circumstances.

You can use our free mortgage sourcing tool below to compare the latest first-timer buyer mortgage rates and hit the 'enquire' button to find out whether your would qualify for each deal based on your credit situation:

How to increase your chances of getting a first-time mortgage with bad credit

If you’re a first-time buyer with no credit or a poor credit history, there are some actions you can take prior to making a mortgage application that may increase your chances of securing the finance you need.

1. If you have no credit, try to establish a credit history first: This can be as simple as ensuring you have bills in your name at the address where you currently live. People who have successfully rented a home before they buy may have an easier time as they are likely to have multiple bills in their name and already appear on the electoral roll

2. Save as much of a deposit as possible: First-time buyers generally need more deposit than other buyers, as they have no home to use as a collateral. However, if you have bad credit, the more you can save, the better your chances

3. Look at other options: If a large deposit is not a possibility, consider home ownership schemes, such as Shared Ownership, which doesn’t require such a large initial outlay

4. Speak to a mortgage broker with expertise in this area: They can advise you on whether there are steps you could take to improve your credit file enough to get your application approved, or whether it’s best to look at other options for the time being

At Money Helpdesk our brokers specialise in bad credit mortgages for first-time buyers.

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