A low credit score standing in the way of securing your dream property is extremely frustrating. Fortunately, with the help of an experienced mortgage advisor, there are ways around this. Let’s take a look at how credit scores affect mortgage applications and what you can do to secure a mortgage with a low credit score.
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Understanding low credit scores and mortgages
How do credit scores affect mortgage applications?
Credit scores play a crucial role in mortgage applications, as they indicate how financially reliable you are and whether or not you would be considered risky by lenders.
While a high credit score can increase the chances of mortgage approval, a low score may result in higher interest rates and stricter lending criteria.
What is considered a low credit score?
Different credit reference agencies have different models for measuring credit scores, but generally, a score below 580 is considered low.*
There are a number of different reasons why a credit score could be low, such as missed or late payments, high levels of existing debt, frequent credit applications, or having no credit history to assess at all.
Related: What is mortgage agreement in principle?
Steps to securing a mortgage with a low credit score
Improve your credit score before applying
If you have a low credit score, there are a few things you can do to improve it before applying. The most important thing to do is to make sure you consistently pay all your bills on time and reduce your existing debt as much as possible.
Avoid opening new credit accounts in the months leading up to your mortgage application, as hard credit checks can temporarily lower your score.
Save for a larger deposit
Lenders are more likely to overlook your low credit score and accept your mortgage application if you’re willing to pay a larger deposit. This demonstrates financial discipline and commitment, which can offset concerns about your credit history.
Additionally, a larger deposit often leads to more favourable mortgage terms, including lower interest rates, making your monthly payments more manageable.
Related: Four tips for saving your deposit
Consider a guarantor mortgage
Having a guarantor who agrees to be responsible for your mortgage payments if you default may reduce the lender’s risk and make them more likely to approve your application despite your low credit score.
To minimise the lender’s risk, your guarantor must have a strong credit history and be stable financially.
Related: How much mortgage can I get for my salary?
Mortgage options for low credit score applicants
Specialist mortgage lenders
If standard mortgage lenders are rejecting your application due to your low credit score, it’s worth considering specialist mortgage lenders.
These focus on providing mortgage products to individuals with poorer credit histories, giving you a better chance of securing a loan. While they may charge slightly higher interest rates, specialist lenders offer more flexibility in their lending criteria, making it easier for low-credit-score applicants to qualify.
Government schemes
In addition to specialist lenders, there are government-backed schemes that aim to help buyers with low credit scores.
For example, the Help to Buy scheme offers equity loans to first-time buyers looking to move. This allows you to put down a smaller deposit while still accessing a mortgage with an affordable interest rate, even with a low credit score.
Another option is the Shared Ownership scheme, which allows you to buy a share of a property and pay rent on the remaining portion. These schemes can be a lifeline if you’re struggling to secure a traditional mortgage.
