How to get the Best Rates on a Bad Credit Mortgage

People with bad credit may not qualify for a traditional mortgage, but there are specialist lenders out there with a more flexible criteria. These mortgage providers can cater for a wider range of customers, but often charge a high interest rate to offset the increased risk.

In this article, we’ll explore the differences between bad credit and regular mortgage rates – and how you can still find a deal that’s right for you.

How to get the best rates on a bad credit mortgage

By following these steps you’ll put yourself in the strongest position to secure the best rates on a bad credit mortgage.

How deposit size affects interest rates

The bigger your deposit the better chance you have of getting a better interest rate deal on your mortgage – that’s why it’s so important to know what kind of deposit you’re going to need before starting the application process. The amount of time you spend saving for your deposit should be balanced against the potentially lower interest rate that you could secure.

So, deposits of between 5%-10% will attract the highest interest rates. Realistically an applicant with a bad credit record will likely need a deposit of between 20%-25% in order to improve their chances of success. Deposits in excess of 25% should also see lower interest rates attached as the risk to a mortgage lender is reduced.

Watch out for upfront payment fees

One thing to look out for is that some mortgage interest rate offers for people with a bad credit record can come with large upfront payment fees from £1,000-£1,500. In certain cases, this may outweigh any savings you make through getting a low introductory rate.

That’s why it’s best to solicit help from an expert mortgage broker who understands the bigger picture and can take you directly to a mortgage loan with the best overall terms.

Types of bad credit and their impact on rates

Your credit score is one of the most important factors when it comes to getting a good deal on mortgage interest rates. If your credit score has multiple issues and just barely scrapes by for approval, it could mean you’ll end up paying a lot more in interest over your mortgage term.

So it’s worth taking the time to understand how specific issues could drive up your interest rate. To make this easy for you, we’ve listed some credit score issues that will have the biggest impact on your interest rates.

Missed Payments

If you’ve missed 1-2 bill payments, this won’t impact your credit score and interest rates as much as missing several months worth would. And missing a mortgage payment is likely to drive up your interest rates more than missing other types of payments.

You can read more in our guide to getting a mortgage with missed payments on your file.

Debt Management Plans

If you get approved for a mortgage with a debt management plan, the more recent the DMP, the less competitive the mortgage rates are likely to be. So if you’re unhappy with the mortgage rates offered, allowing some time to pass could up your chances of getting a good rate. Read more in our guide to debt management plans and mortgages.

Bankruptcy

Most lenders require a three year waiting period after you have been discharged. Some may accept an application after 1 year of being discharged from bankruptcy, but their interest rates are often quite high.

If you’re worried about how any of these bad credit score issues could impact mortgage interest rates, it’s worth speaking to an expert mortgage broker. A specialist can assess your individual situation, offer advice, and take you directly to a provider with a niche mortgage offer with the best possible interest rate.

You can read more in our guide to getting a mortgage after bankruptcy.

Do bad credit mortgage brokers charge a higher fee?

Yes, they do. Brokers will charge between 1- 3% of the sum that you are borrowing, and this percentage may vary depending on how complex the deal is.

This means that cases with multiple credit defaults will likely cost more than a simple one-off credit score issue, as it will take the broker longer to find a favourable loan option.

Mortgage brokers will charge upwards of £499 on average for borrowers with bad credit histories and will normally only accept payment upon completion of your mortgage loan deal.

Bad credit mortgage lenders and the rates they offer

The table below will provide you with a guide as to which lenders cater for applicants with bad credit….

The rates quoted above were correct at the time of writing (May 2023) and are subject to change at any time at the lender’s discretion. Speaking to a mortgage broker is the best way to keep track of the rates available at any given time. 

Speak to an expert bad credit mortgage advisor today

Even a fraction of a higher percentage interest rate can add up to many thousands of extra pounds paid over the course of your mortgage. That’s why – especially if you’ve got poor or no credit history at all – it’s worth talking with a broker.

They can help weed out what types of loans might not be feasible based on your credit score and other factors like income level and debt ratios. And you’ll have peace of mind, knowing you got the best interest rate possible.

Call us now on 0808 189 0463 or make an enquiry and we’ll connect you with an expert broker for your situation who will be able to answer any questions about the process from start-to-finish.

We don’t charge a fee for matching you with the right broker and there’s no obligation to take things further after an initial consultation.