Understanding Adverse Credit
Having adverse credit doesn't mean homeownership is impossible. Millions of UK residents have credit issues, but with the right approach, specialist lenders, and realistic expectations, you can still secure a mortgage. This guide explains everything you need to know about getting a mortgage with bad credit.
The Reality Check
30% of UK adults have some form of adverse credit history | Specialist adverse credit mortgages typically cost 2-4% more than prime rates | Average deposit required: 15-25% minimum | Processing times often 50% longer than standard mortgages
Types of Adverse Credit
Credit Score Ranges
| Mild Adverse Credit | Moderate Adverse Credit | Severe Adverse Credit |
|---|---|---|
|
• Late payments (1-2 months) • Missed credit card payments • Overdraft usage • Credit utilization >30% |
• Defaults (satisfied) • CCJs (satisfied) • Debt management plans • Multiple late payments |
• Recent bankruptcy • Current CCJs • IVAs (active/recent) • Mortgage arrears • Repossessions |
How Credit Issues Affect Mortgage Applications
Impact on Lending Terms
Higher Interest Rates
Expect to pay 2-6% above prime rates depending on credit severity and lender risk assessment.
Larger Deposits Required
Minimum 15% for mild issues, 25-40% for severe problems. Higher deposits improve available rates.
Limited Lender Choice
Mainstream lenders often decline immediately. Specialist lenders have specific criteria and higher costs.
Additional Fees
Higher arrangement fees, broker fees, and potentially mortgage indemnity premiums.
Waiting Periods After Credit Events
| Credit Event | Minimum Wait (Mainstream) | Minimum Wait (Specialist) | Optimal Wait Period |
|---|---|---|---|
| Late Payments | 12 months clean history | Immediate (higher rates) | 24 months |
| Defaults (satisfied) | 3-6 years | 3-6 months | 2-3 years |
| CCJs (satisfied) | 3-6 years | 3-12 months | 3 years |
| IVA (completed) | 6 years | 12 months | 3-4 years |
| Bankruptcy (discharged) | 6 years | 2-3 years | 4-6 years |
| Repossession | 6+ years | 3-4 years | 6+ years |
Specialist Adverse Credit Lenders
High Street Banks
Examples: Barclays, Santander (specific criteria)
Best for: Mild credit issues with good explanations
Rates: Competitive if accepted
Specialist Lenders
Examples: Pepper Money, Bluestone, Vida
Best for: Moderate to severe credit problems
Rates: Higher but more flexible criteria
Building Societies
Examples: Accord, Buckinghamshire BS
Best for: Manual underwriting, complex cases
Rates: Varies widely by case
Near-Prime Lenders
Examples: Aldermore, Shawbrook
Best for: Self-employed with credit issues
Rates: Mid-range pricing
Lender Appetite Changes
Specialist lender criteria change frequently based on market conditions, regulatory requirements, and risk appetite. What's declined today might be acceptable in 3-6 months with a different lender.
Improving Your Credit Before Applying
6-Month Credit Improvement Plan
Credit Recovery Timeline
Month 1: Credit Audit
Obtain full credit reports from all three agencies. Identify errors, outdated information, and areas for improvement.
Months 1-2: Quick Fixes
Correct errors, register on electoral roll, close unused accounts, and set up direct debits for all bills.
Months 2-4: Utilization Optimization
Reduce credit utilization below 30% (ideally under 10%), make small purchases and pay in full monthly.
Months 4-6: Pattern Building
Establish consistent payment patterns, avoid credit applications, and build positive payment history.
Specific Improvement Strategies
Immediate Actions (Week 1)
- Check credit reports from Experian, Equifax, and TransUnion
- Register on electoral roll at current address
- Set up direct debits for all regular payments
- Close any unused credit accounts (carefully - consider credit history length)
Medium-term Actions (Months 1-3)
- Dispute any errors or outdated negative information
- Pay down existing debts to reduce credit utilization
- Consider a credit-building credit card if you have none
- Avoid all unnecessary credit applications
Check Your Credit Score
Before applying for any mortgage, know exactly where you stand with free credit reports and understand your options.
Credit Assessment ToolsThe Application Process
Documentation Requirements
Adverse credit applications require significantly more documentation than standard mortgages:
Enhanced Financial Evidence
6-12 months bank statements, detailed income proof, expenditure analysis, and debt commitments.
Credit Explanation Letters
Written explanations for all adverse credit events, demonstrating understanding and changed circumstances.
Supporting Evidence
Employment letters, payslips, tax returns, and evidence of improved financial management.
Property Documentation
Property details, valuation, survey (often required), and proof of deposit source.
Working with Brokers
Why Brokers Are Essential
Specialist mortgage brokers understand which lenders accept different types of adverse credit, can package your application effectively, and often have access to exclusive products not available directly to consumers.
Common Application Mistakes
- Applying directly to mainstream lenders: Wastes credit searches and time
- Not explaining credit issues: Lenders want context and evidence of change
- Insufficient deposit: Larger deposits significantly improve acceptance chances
- Unrealistic expectations: Rates will be higher - factor this into affordability
- Multiple applications: Can damage credit score further through hard searches
Alternative Options
Guarantor Mortgages
Family members guarantee your mortgage payments, potentially improving terms:
- How it works: Guarantor (usually parent) provides security against their property
- Benefits: Better rates, higher borrowing, lower deposits possible
- Risks: Guarantor liable for payments if you default
- Requirements: Guarantor must have significant equity and good credit
Joint Borrower Sole Proprietor (JBSP)
Family member helps with affordability without becoming property owner:
- Structure: Joint liability for mortgage but only one person owns property
- Benefits: Improved affordability, avoid stamp duty surcharge
- Considerations: Both incomes assessed, both liable for debt
- Exit strategy: Plan for removing additional borrower later
Rent-to-Buy Schemes
- Shared ownership: Buy partial share, rent remainder from housing association
- Rent-to-own: Rent with option to purchase after credit improvement
- Housing association schemes: Specific programs for credit-impaired buyers
Managing Expectations and Costs
Realistic Rate Expectations
| Credit Situation | Typical Rate Range | Deposit Required | Product Availability |
|---|---|---|---|
| Mild issues (score 600+) | Prime rate + 0.5-2% | 10-15% | Good selection |
| Moderate issues (score 500-600) | Prime rate + 2-4% | 15-25% | Limited but available |
| Severe issues (score <500) | Prime rate + 4-8% | 25-40% | Very limited |
Total Cost Considerations
Hidden Costs Add Up
Arrangement fees: £1,000-£3,000 | Broker fees: £500-£2,000 | Higher rates: £200-500+ extra monthly | Valuation/survey: £300-800 | Legal fees: Often higher for complex cases
Long-term Strategy
- Plan for remortgaging: Most adverse credit mortgages are 2-5 year fixed rates
- Continue credit improvement: Better rates available as credit improves
- Build equity: Higher property values and lower loan-to-value improves options
- Consider overpayments: If allowed, reduces balance and improves future applications
Success Stories and Recovery
Typical Recovery Timeline
Path to Prime Lending
Year 1: Initial Mortgage
Secure adverse credit mortgage with specialist lender at higher rates (6-8%). Focus on perfect payment history.
Years 2-3: Credit Rebuilding
Maintain perfect mortgage payments, improve overall credit profile, build equity through payments and property appreciation.
Years 3-5: First Remortgage
Access better rates (4-6%) with improved credit and lower LTV. Consider near-prime or mainstream lenders.
Years 5+: Prime Market Access
With sustained good payment history and improved credit, access mainstream competitive rates.
Real Recovery Example
Case: Couple with CCJ and defaults from business failure | Initial mortgage: £180k at 7.2% with 25% deposit | After 3 years: Remortgaged to 4.8% saving £350/month | Key factors: Perfect payment history, credit score improved from 450 to 720
Professional Support
When to Seek Help
- Complex credit history: Multiple issues, recent events, or unclear circumstances
- Self-employed: Combined income verification and credit challenges
- Time pressure: Chain transactions or fixed moving dates
- Previous rejections: Multiple application failures suggesting strategy issues
Types of Professional Support
Adverse Credit Brokers
Specialists in bad credit mortgages with lender relationships and packaging expertise.
Credit Repair Services
Professional credit file improvement, dispute handling, and optimization strategies.
Financial Advisors
Holistic financial planning including mortgage strategy and credit improvement.
Legal Support
For complex cases involving bankruptcies, IVAs, or disputed credit information.
Choosing the Right Support
Look for FCA-regulated advisors with specific adverse credit experience. Check reviews, ask about fees upfront, and ensure they explain all options - not just the products they can arrange.
Real-World Adverse Credit Mortgage Examples
Understanding how different credit issues affect mortgage applications helps set realistic expectations. Here are detailed examples showing what's possible with various credit situations:
Example 1: Satisfied CCJ - £8,000 (2 Years Ago)
Applicant Profile
Credit Issue: One CCJ for £8,000, satisfied 2 years ago
Current Credit Score: 620 (Fair)
Income: £45,000 per year (employed 5 years)
Deposit: £40,000 (20%)
Property Value: £200,000
Outcome: Approved by specialist lender (Pepper Money)
Rate: 5.2% (prime rate + 1.5%)
Term: 25 years, 2-year fixed
Monthly Payment: £935
Key Factor: CCJ satisfied over 12 months ago, good payment history since, 20% deposit improved terms significantly. Use our repayment calculator to estimate your monthly costs.
Example 2: Recent Default - £3,500 (6 Months Ago)
Applicant Profile
Credit Issue: Default on credit card £3,500, 6 months ago
Current Credit Score: 550 (Poor)
Income: £38,000 per year (self-employed 3 years)
Deposit: £45,000 (25%)
Property Value: £180,000
Outcome: Approved by specialist lender (Bluestone)
Rate: 6.8% (prime rate + 3.1%)
Term: 25 years, 3-year fixed
Monthly Payment: £925
Key Factor: Recent default required 25% deposit and higher rate. Self-employed status required 3 years accounts. Lender accepted written explanation showing job loss as cause. Check your affordability with higher rates.
Example 3: Discharged Bankruptcy (3 Years Ago)
Applicant Profile
Credit Issue: Bankruptcy discharged 3 years ago
Current Credit Score: 480 (Very Poor)
Income: £52,000 per year (employed 2 years)
Deposit: £70,000 (35%)
Property Value: £200,000
Outcome: Approved by specialist lender (Vida Homeloans)
Rate: 7.5% (prime rate + 3.8%)
Term: 20 years, 5-year fixed
Monthly Payment: £1,045
Key Factor: Bankruptcy over 3 years old was crucial. 35% deposit essential for approval. Perfect payment history since discharge demonstrated rehabilitation. Shorter term reduced lender risk. Calculate your deposit requirements for different scenarios.
Example 4: Multiple Late Payments (Last 12 Months)
Applicant Profile
Credit Issue: 6 late payments (1-2 months) across 3 accounts in last 12 months
Current Credit Score: 590 (Poor)
Income: £42,000 per year (employed 7 years)
Deposit: £30,000 (15%)
Property Value: £200,000
Outcome: Approved by high street lender with adverse credit criteria (Santander)
Rate: 4.9% (prime rate + 1.2%)
Term: 30 years, 2-year fixed
Monthly Payment: £900
Key Factor: Mild adverse credit with good explanation (temporary income reduction, now resolved). All payments current for last 3 months. 15% deposit acceptable for this level of issue. Strong employment history helped.
Key Takeaways from Real Examples
- Time heals: Older credit issues (2+ years) significantly improve approval chances and rates
- Deposit is king: Higher deposits (25-35%) can overcome severe credit problems
- Explanations matter: Written context for credit issues improves lender understanding
- Recent behavior counts: Perfect payment history for 6-12 months demonstrates rehabilitation
- Specialist lenders vary: Different lenders accept different issues - broker knowledge is crucial
- Rates reflect risk: Expect 1.5-4% above prime rates depending on severity and deposit
Credit Score Improvement: 90-Day Action Plan
If you're not ready to apply yet, this intensive 90-day plan can significantly improve your credit score and mortgage prospects:
Days 1-7: Credit Audit & Quick Wins
Immediate Actions
- Day 1: Obtain credit reports from Experian, Equifax, and TransUnion (free statutory reports or paid monitoring)
- Day 2: Register on electoral roll at current address (instant 50+ point boost)
- Day 3: Identify and dispute any errors, outdated information, or fraudulent entries
- Day 4: Set up direct debits for ALL regular payments (rent, utilities, phone, subscriptions)
- Day 5: Check credit utilization - aim to use <30% of available credit across all cards
- Day 6: Close any unused credit accounts opened in last 6 months (keep older accounts)
- Day 7: Create a spreadsheet tracking all debts, minimum payments, and due dates
Days 8-30: Debt Reduction & Payment Optimization
Strategic Debt Management
- Week 2: Pay down credit cards to below 30% utilization (prioritize cards closest to limit)
- Week 3: Contact creditors about any outstanding defaults - negotiate payment plans or settlements
- Week 4: Ensure all current payments are made on time (set reminders 3 days before due dates)
- Ongoing: Avoid all new credit applications (each hard search reduces score by 5-10 points)
Days 31-60: Building Positive History
Demonstrating Reliability
- Month 2: Continue perfect payment record - no late payments, no missed payments
- Credit building card: If you have no active credit, consider a credit-building card (use for small purchases, pay in full monthly)
- Rent reporting: Use services like CreditLadder to report rent payments to credit agencies
- Savings evidence: Build savings to demonstrate financial management (lenders review bank statements)
Days 61-90: Pre-Application Preparation
Final Optimization
- Day 61: Review credit reports again - confirm improvements are reflected
- Day 70: Gather 3-6 months bank statements showing clean payment history
- Day 75: Prepare written explanations for any remaining adverse credit
- Day 80: Research specialist brokers and lenders for your specific situation
- Day 85: Calculate realistic affordability including higher adverse credit rates
- Day 90: Consult with adverse credit mortgage broker for pre-application assessment
Expected Score Improvement
Typical 90-day gains: 50-120 points depending on starting position and issues addressed
Best case: 150+ points if major errors corrected or defaults satisfied
Realistic timeline: 6-12 months for significant improvement, 2-3 years for full rehabilitation
Key metric: Perfect payment history for 6+ months is more valuable than score alone
Frequently Asked Questions
Can I get a mortgage with a CCJ?
Yes, you can get a mortgage with a County Court Judgment (CCJ), but it depends on the amount, age, and whether it's satisfied. CCJs under £1,000 and over 3 years old have minimal impact. Recent CCJs over £5,000 require specialist lenders and typically 20-25% deposits. Satisfied CCJs (marked as paid) are viewed more favorably than unsatisfied ones. Expect rates 1.5-3% above prime depending on severity. Most lenders want CCJs to be at least 12 months old, with some accepting 6 months if satisfied and explained.
How long after bankruptcy can I get a mortgage?
You can apply for a mortgage 12 months after bankruptcy discharge, though most specialist lenders prefer 2-3 years. At 12 months post-discharge, expect very limited options, rates of 7-9%, and deposits of 35-40%. At 3 years, options improve significantly with rates around 5-7% and deposits of 25-30%. At 6 years, bankruptcy is removed from your credit file, and you may access near-prime rates with 15-20% deposits. Perfect payment history since discharge is essential - any missed payments reset the clock.
What deposit do I need with bad credit?
Deposit requirements vary by credit severity: Mild issues (late payments, high utilization) typically need 10-15% deposits. Moderate issues (satisfied defaults, old CCJs) require 15-25% deposits. Severe issues (recent defaults, IVAs, bankruptcy) need 25-40% deposits. Higher deposits significantly improve available rates - increasing from 15% to 25% can reduce rates by 1-2%. Some specialist lenders accept 10% with guarantors even with adverse credit. Use our deposit calculator to plan your savings target.
Will a default stop me getting a mortgage?
A default won't automatically stop you getting a mortgage, but it will limit your options and increase costs. Defaults under £500 and over 2 years old have minimal impact with mainstream lenders. Defaults of £1,000-£5,000 require specialist lenders if less than 2 years old. Multiple defaults or amounts over £5,000 significantly restrict options and require 20-30% deposits. Satisfied defaults (marked as paid) are much better than unsatisfied ones. Some lenders ignore defaults over 3 years old if your credit has been perfect since. Always provide written explanations for defaults - context matters.
Can I get a mortgage with an IVA?
Getting a mortgage with an active Individual Voluntary Arrangement (IVA) is very difficult but possible with specialist lenders. During an IVA, you typically need 25-35% deposits and rates of 7-10%. Most lenders require IVA supervisor approval before lending. After IVA completion, wait 12 months for better options - rates improve to 5-7% with 20-25% deposits. Three years after IVA completion, you may access near-mainstream rates with 15-20% deposits. Six years after completion, the IVA is removed from your credit file. Perfect payment record during and after IVA is essential for future mortgage approval.
How much more expensive is a bad credit mortgage?
Bad credit mortgages typically cost 1.5-4% more in interest rates compared to prime mortgages, plus higher fees. On a £200,000 mortgage over 25 years: Prime rate (3.5%) = £1,001/month, £300,300 total. Mild adverse (5%) = £1,169/month, £350,700 total (+£50,400). Severe adverse (7.5%) = £1,480/month, £444,000 total (+£143,700). Additional costs include arrangement fees (£1,000-£3,000 vs £0-£1,000), broker fees (£500-£2,000), and higher valuation fees. However, rates improve significantly when you remortgage after 2-3 years of perfect payments, potentially saving £200-400/month.
Should I wait to improve my credit before applying?
It depends on your timeline and current credit situation. Wait if: your credit issues are less than 6 months old (rates improve significantly after 12 months), you can increase your deposit from 15% to 25% within 6 months (saves 1-2% on rates), you have recent missed payments (wait for 3-6 months of perfect history), or you're close to satisfying defaults/CCJs (satisfied is much better than unsatisfied). Apply now if: you need housing urgently, your credit won't improve significantly in 6-12 months, you have 20%+ deposit ready, or property prices are rising faster than you can save. Consult a broker for personalized advice - they can model different scenarios.
Can I remortgage to a better rate after getting an adverse credit mortgage?
Yes, remortgaging to better rates is a key strategy for adverse credit borrowers. Most adverse credit mortgages are 2-5 year fixed terms, after which you can remortgage. To maximize your chances: maintain perfect mortgage payment history (most important factor), improve overall credit score by 50-100 points, build equity through payments and property appreciation (aim for 75-80% LTV), clear any remaining defaults or CCJs, and avoid new credit issues. After 2-3 years of perfect payments, many borrowers reduce rates by 2-3%, saving £200-400/month on a £200,000 mortgage. Use our remortgage calculator to estimate potential savings.