In this brief guide, we are going to discuss “how to get a mortgage with no deposit and bad credit”.

How to get a mortgage with no deposit and bad credit

Getting a mortgage with no deposit may be possible depending on your circumstances but getting a mortgage with no deposit and bad credit may be even much harder. Whilst you may be able to get a mortgage you should expect high mortgage rates.

Some mortgage lenders may offer mortgages to the bad credit mortgage market and offer may offer mortgages to the no deposit market but very few may operate in both markets and hence finding a mortgage lender who will offer a mortgage to a borrower with no deposit and bad credit will prove difficult.

If there are mortgage lenders offering these kinds of mortgages then there may be very few mortgage lenders and hence the mortgage rates may be much higher.

This will also mean that your mortgage repayments may also be much higher in comparison to someone who has a good credit score and a sizeable mortgage deposit.

This means, at the very least if you had no deposit and bad credit you should at least have a sizeable income which will cover your monthly mortgage repayments as well a sbe able to pass a mortgage stress test.

Below we will highlight some tips which you may want to follow if you have no deposit and bad credit:

  • Build your credit score and history
  • Save a mortgage deposit
  • Have a good income
  • Get a guarantor
  • Reduce your monthly expenses
  • Use a Government scheme
  • Speak to a specialist mortgage broker

Build your credit score and history

One of the main things you may want to do if you have no deposit and bad credit is to build your credit before you apply for a mortgage.

By building your credit score you will increase the likelihood of getting a mortgage and also getting a mortgage wtih a better mortgage rate which will consequently affect your monthly mortgage repayments by hopefully making them lower and hence increasing the likelihood that you will be able to afford a mortgage even with no deposit and bad credit.

Why is your credit score important?

Your credit score is very important as this is what mortgage lenders use when analysing your ability to repay any borrowed credit.

Your credit score is a compilation of your borrowing data for the past 6 years. 

It will contain all credit accounts you have had and your repayment history with those accounts.

The credit bureau then uses this to determine your credit score.

There are various credit bureaus in the UK and each use a different way of determining your credit score but the basic principle remains the same.

If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.

Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.

Alternatively, you can also use credit score services such as Checkmyfile and clearscore to check your credit report.

Tips for building credit

There are various tips on how to build credit but some of the most common ones are listed below:

Pay your bills on time and in full

-Expand your credit. The more types of credit you have which are all paid on time the better your score.

-Register to vote on your main home address

-If you rent and pay your rent on time, then report this to the credit bureaus.

-Ask for a credit limit increase

-Check your credit report for any errors

-Don’t close or cancel Bank accounts or credit cards. The longer you have these open, the better.

-Use only 30% of your available credit such as overdraft or credit cards. This shows that you are not too dependent on credit

-Do not make too many credit applications within 3 months. 1 every 3 months is is acceptable.

-Avoid getting rejected for credit and only make applications where you have a 95% chance of approval or are pre-approved.

-Avoid adverse credit such as payday loans

-Avoid maxing out your credit card or going over your limit as it makes you seem dependent on credit. You might also incur a few fees from your credit card provider.

-Ensure you do not default on any repayments-, even if this is not credit as you can still have negative marks due to owing people or companies from things such as county court judgements, Bankruptcy or Individual voluntary agreements.

Always inform your credit provider if you are having difficulty and they could work something out with you rather than selling your debt to a collection agency which will cost you more

Save a mortgage deposit

Getting a mortgage with no deposit and bad credit will be very hard and one way you can reduce the difficulty in doing this is by building up a mortgage deposit.

Building up a mortgage deposit can be hard but by following a few tips you can ensure you build up a mortgage deposit over a few years

Here are some tips to save a mortgage deposit:

  • Put money away each month
  • Make a budget and stick to it
  • Punish yourself by saving more if you do not keep within your monthly budget
  • Increase the percentage you save as your monthly income rises
  • Save with a friend or partner for more motivation and for some accountability
  • Shop with cashback cards so you get cashback when you shop
  • Ask your family for contributions into your mortgage deposit savings
  • Save with a reputable institution so you get good savings rate

Have a good income

Another way you can increase the likelihood of you getting a mortgage with no deposit and bad credit is by increasing your monthly income.

By increasing your monthly income you will hopefully have enough which means you will be much more able to repay and afford your monthly mortgage repayments and in the same breath, it will increase the mortgage lenders likelihood pf giving you a mortgage.

Get a guarantor

Another way you can increase the likelihood of getting a mortgage with no deposit and bad credit is by getting a guarantor.

A guarantor will essentially underwrite the risk of the mortgage and if you default on the mortgage then the guarantor will have to pay the mortgage in full.

Reduce your monthly expenses

Another way you can increase the likelihood of getting a mortgage is by reducing your monthly expenses and hence increasing your monthly disposable income which you will use to pay your monthly mortgage repayments. 

Use a Government scheme

There are a host of Government schemes which you may be able to assess and help you reduce your mortgage deposit requirement or the cost of buying a property.

The downside of this is that a lot of these Government schemes will require that you have a good credit score and hence will refuse your application to them.

There may however be some government schemes which will accept you based on the type of bad credit you have.

Your best bet is inquiring with the government scheme providers below.

Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.

Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.

Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.

Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.

Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.

Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.

Right to buy– allows you to buy your home at a discount price.

Preserved right to buy- same as above.

Right to acquire- same as above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Speak to a specialist mortgage broker

Once you have done the above you may then want to ensure that you have at least sought out som independent professional advice.

There are specialist mortgage brokers who may be able to offer you specialist mortgage advice on having no deposit and bad credit.

You may want to consider using an independent mortgage broker to get a mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

In this brief guide, we discussed “how to get a mortgage with no deposit and bad credit”.

If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.