Credit Building > Which mortgage lenders accept first time buyers with bad credit?

Which mortgage lenders accept first time buyers with bad credit?

Wollit Team4 minute read · Updated 3rd July 2024

If you are a first-time buyer in the UK with a bad credit history, finding a mortgage can be quite hard.

However, there are several mortgage lenders that work with people with bad credit. These lenders have more flexible lending criteria and so can work with people who traditional lenders would reject outright. Let’s look at what terms they offer and whether they’re the right fit for you.

What is bad credit?

Before we look at the mortgage options, we need to be clear what “bad credit” means.

Bad credit usually means having a low credit score because of a history of financial difficulties, like missed payments, defaults, CCJs (County Court Judgments), IVAs (Individual Voluntary Arrangements), DMPs (debt management plans), and high levels of debt.

These issues can have a big impact on your credit score, making it much harder to secure a mortgage.

What are the factors that can affect my mortgage application?

When applying for a mortgage, you should know that lenders look at a whole range of factors:

How much you earn and how much you spend. Lenders want to know if you can afford repaying the mortgage.
How much you can put down as a deposit. A larger deposit can increase your chances of approval and lower your monthly payments.
What your credit history looks like. Credit score is calculated based on the credit history and can give lenders a quick idea of how you are as a borrower. However, during the application lenders will look at the credit history in detail, to understand the risk of lending to you.

This means that if you have bad credit, you’ll have to make it up for it with a higher deposit and a higher interest rate.

Which mortgage lenders work with first time buyers with bad credit?

Several mortgage lenders in the UK offer mortgages to first-time buyers with bad credit. These lenders are often referred to as “bad credit lenders”, "subprime lenders", or "high-risk lenders."

Here are some of them:

Bluestone Mortgages: Bluestone Mortgages offers a range of mortgage products for first-time buyers with bad credit. They are willing to consider applications with CCJs, defaults, and other adverse credit issues.
Pepper Money: Pepper Money is another lender that provides mortgages to first-time buyers with bad credit. They only work through mortgage brokers, and you can’t apply directly with them.
Together: Together is a specialist lender that offers mortgages to first-time buyers with bad credit. They also offer LTV mortgages of up to 75%, are willing to consider up to 4 applicants on a joint mortgage, and also accept automated valuations.
United Trust Bank: United Trust Bank also provides mortgages to first-time buyers with bad credit. Like many on this list, they work only through brokers as well.
Vida Homeloans: Vida Homeloans is a specialist mortgage lender that claims to use behavioural data and cutting-edge technology to process bad credit mortgage applications. They also work exclusively through brokers and partner with Unbiased (a website to find financial advisors, accountants, and brokers) for this.
Kensington Mortgages: Kensington Mortgages is a specialist mortgage lender that claims to work with all kinds of complex situations, from freelancers to people with bad credit and people with low deposits. They work with Like Mortgage Advice, a specialised mortgage adviser firm, to make sure your mortgage is completely tailored to you and your unique situation.
United Trust Bank: United Trust Bank is another lender that provides mortgages to first-time buyers with bad credit. They also lend only through mortgage brokers.

As you can see, the majority of the mortgage lenders who accept first time buyers with bad credit only work through intermediaries. There’s nothing odd here – they do this because there is much more work involved in assessing the creditworthiness of a buyer with bad credit.

What are the usual mortgage rates for first-time buyers with bad credit?

The mortgage rates that you can expect if you're a first-time buyer with bad credit can vary depending on several factors, including the Bank of England base rate, the lender, the loan-to-value (LTV) ratio, and your credit score.

To give you an idea, here are some general interest rate ranges for bad credit mortgages:

2-Year Fixed Rate: 5.09% to 7.5%.
5-Year Fixed Rate: 4.71% to 7.2%.
All fixed terms: 4.71% to 7.2%.
85% LTV: 4.53% to 6.6%.
90% LTV: Higher rates, usually above 7.5%.

These rates are higher than those for standard mortgages, as they are meant to account for the increased risk associated with lending to borrowers with poor credit history.

The rates also have to account for the manual underwriting process and the extra checks. In other words, you’ll have to cover the costs of the extra work that both the lender and their brokers have to do.

How can I increase my chances of approval for a mortgage if I'm a first buyer with bad credit?

To increase your chances of approval for a mortgage as a first-time buyer with bad credit, here are some things you can do:

Keep a stable job. If you’re self-employed, consider becoming an employee. Lenders like to see stability.
Buy a cheaper property. This can mean a lower LTV (Loan-to-Value) ratio, which can both increase your chance of approval and get you a lower mortgage rate. If you have both bad credit and are asking for a high LTV, then you’ll be a higher risk for the lender. The higher interest rate is their way of getting compensated for this increased risk.
Save more for a deposit to further lower your LTV. If your credit score is low, you might need to put down a larger deposit, at least 15%. This means you will have a lower LTV ratio of 85%. To lower your LTV, you will need to put down a larger deposit on the home you are buying. If you can put down 20% or 30%, you will be able to get the best interest rates possible.
Try to avoid applying for other credit products in the months leading up to your mortgage application to avoid negatively impacting your credit score
Work on improving your credit score.

This last piece of advice is possibly the most important and the easiest to act on.

To improve your credit score, you should focus on paying bills on time, reducing debt, and maintaining a consistent credit history.

You should also look into credit-building tools, like credit builder cards or a specialised credit building app.

One such app is Wollit. Wollit is an app available both on Android and iOS, and it works by reporting a fixed-fee monthly subscription as a loan repayment to all three credit reference agencies – Experian, Equifax, and TransUnion. This helps you build your credit history and directly influences your credit score.

On top of this, Wollit can also report your monthly rent payment to Experian. This can add another line in your credit report that shows lenders that you’re reliable and pay your bills on time, helping you make the most of your rent while you prepare to become a homeowner.