Can I Get a First Time Buyer Mortgage With a Bad Credit Rating?

For those seeking first time buyer mortgages, you might not have heard how just by searching for mortgage rates can affect your credit rating if you're not careful. What you might not know is that if you are enquiring online about a mortgage and fill in a website enquiry form you could be subject to a credit check, with many firms treating the enquiry as a first step application for a mortgage and burying this fact in the terms and conditions which, if you're like me, no one ever reads. Unfortunately credit reports do not discern between an enquiry and a rejection. This results in the last enquiry you made showing up when the current broker reviews your request, what they will see is a rejected mortgage application and reject it themselves, by this point, ironically adding another mortgage rejection to your credit report. It's a vicious spiral downwards with no easy way out if you don't tread carefully; to swerve this it is advisable to speak to a mortgage broker or an independent financial adviser (IFA) to begin with, as they can search on your behalf, thereby not affecting you credit rating.

Most, if not all the mortgage firms in the UK will either use Experian or Equifax to check your credit ranking, so doing a credit check with one or both of them yourself would be advantageous first, before applying for mortgage enquiries to gain a solid idea of where you stand. It is not a well known fact that the credit rating will be based on your current address, so if you live with someone with a low credit score, it will artificially bring down your own score at the same time. Other ways your score can be artificially low include being self employed and/or having unequal streams of income over the year, this will automatically weigh against you. It would take time to untangle the mess of being mislabelled like this. If your situation is worse than a simple credit miscalculation, the door is not closed (don't panic!); there are still options to gain a mortgage as there is an emerging sector that specialises in what are known as "Bad Credit Mortgages" or "Credit Repair Mortgages". Though obviously there will be drawbacks that would not be faced with a "mainstream" mortgage.

Both your interest rates and deposit will be higher than the average mortgage, this is why the sector is growing even though the housing market overall is still lethargic, these mortgages make money and even the high street banks and more established brokers are beginning to enter into this market. The Credit Repair Mortgages do what they say on the tin, over time they slowly repair a credit rating thanks to the regular mortgage repayments you make, depending on how deficient your credit rating is, the repair time can vary, though on average it will be approximately three years. The mortgage has to run for a certain amount of time in which you will be locked into it, after this time you are free to activate the break clause. It is best to make sure the repair mortgage doesn't last much longer than it takes to actually repair the credit rating, as it's then possible to remortgage onto a more normal mortgage, to gain more competitive rates. Credit repair mortgages are incredibly strict in their terms and conditions, if you're looking for flexibility it will not be an option; written into the contract will be over excessive penalty fees to ensure regular payments are met. One of the advantages, in theory at least is that they will infuse people to be more disciplined with their money in the future.

As already stated in this article it's important to talk to an IFA or Mortgage Broker who can shop around the market for the best deal on your behalf, even when it comes to credit repair mortgages, though be cautious not to be caught out by loan sharks or chancers. It is largely uncommon but it has happened; the Financial Services Authority has a regulated list of qualified advisers and companies' so checking this list is probably the best place to start. Some companies offering credit repair mortgages might also charge you just for making an application, another reason to use an IFA as they can investigate on your behalf.

To summarise, it's not the end of the world if you have a bad credit rating, if you are willing to take on extra conditions as part of a credit repair mortgage then you still have some options, just remember, short term pain for long term gain.

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