1. Repossessions

A mortgage is still possible after you have been repossessed, however it will be more difficult to obtain especially from well-known High Street lenders who are most likely to turn you away as soon as they become aware of this from your credit report. Repossession can be an extremely stressful and emotionally draining time, this can be made worse if you are haunted by this going forward by being constantly rejected for finance.

This is why at Direct Mortgages we work with specialist lenders who are happy to look further into your current circumstances rather than immediately turning down an application. This makes the possibility of acquiring a mortgage after repossession more achievable. Lenders are likely to look at:

-When you were repossessed
The reason for repossession
Alternative credit issues
Credit History & Performance since the repossession
Affordability

The purpose of this is so a lender can understand if you have financially recovered from the repossession & to ensure a pattern has emerged which is likely to ensure you will not fall behind in repayments so an additional repossession can be avoided. If the lender is happy you have demonstrated a stable repayment pattern (serviceability) , your chances of getting a mortgage will be much greater.

Remember: The better your serviceability, the more likely you are to be offered a mortgage at a more competitive rate!

2.Pay Day Loans

Generally, lenders dislike the sight of payday loans on an applicant credit file because it indicates financial management struggles, which could occur again in the future if they were to grant you a mortgage, meaning you may find difficulty in servicing repayments.

Mainstream lenders are likely to turn you down when they become aware of the use of a payday loan, even if it was many years ago. A payday loan will be viewable by a lender on your credit history for 6 years. All lenders will have their own lending criteria regarding the use of payday loans, specialist lenders may be more lenient & therefore may be more inclined to consider an applicant who has took out a payday loan rather than immediately reject you.

Such lenders will want to know:

When the loan was took out
Amount borrowed
How often
How quickly loan was repaid

A key determinant for whether a lender will be willing to consider the application is how long ago since the payday loan was taken out. The less recent it was, the more favourable a lender will consider you as an applicant.

3. Zero Hour Contracts

Zero Hour Contracts refer to a method of employment where your employer doesn’t give you any fixed/ minimum working hours & you are not inclined to take any hour of employment offered i.e. you are free to accept or decline as many hours as you wish.

This often means employees on a zero hour contract can’t show a regular full time income which, from a lenders point of view, may be an issue as it could indicate that repayment affordability could be hindered. If your monthly income fluctuates regularly, a lender may not feel confident that you will be financially stable to keep up with mortgage repayments. Regulation has ensured that lenders are much stricter & scrutinise an applicants earnings with evidence before a mortgage is granted & without a consistent level of earnings, this is likely to create an undesirable outcome for a mortgage applicant.

Zero-hour contracts are becoming more common nowadays, to the point that specialist zero hour contract mortgage products exist, therefore specialist lenders exist to accommodate zero hour applicants. Therefore, the chances of obtaining a mortgage under these circumstances are better than in previous times.

There are several ways zero-hour applicants can enhance their chances by displaying they are low risk candidates e.g.

Offer a larger deposit if possible = means less funds have to be borrowed
Show employment history= if you have been in the same job for many years this shows that there is a degree of job security so earnings can continue in the future.
Show ALL Earnings e.g. Bank Savings, Investments, Rental income anything which can show your affordability is enhanced.

4. Low Income

Having low income is not necessarily an obstacle to getting a mortgage, the problem is when you need a mortgage that is not proportionate to your level of earnings. There are ways we can help you get around this if this applies to you, such as:

Bringing another parties income on board as a joint application – this will mean a lender considers the combined level of income so they will interpret that since there are two incomes contributing to the mortgage, this will increase the affordability so a lender will be more willing to increase any potential loan advance

Disclosing any savings, Investments or Rental Income

There are ways to work around this so having low income does not make getting a mortgage impossible!

5. No Proof of Income

Although it is not straightforward, it is possible to get a mortgage without a proof of income! A lot of lenders lending criteria are geared towards incomes that follow a standard 9-5 job, ideally employed by a recognised organisation rather than self-employed.

If you have no proof of income, this will be a stumbling block. Many mainstream lenders wont consider the application and reject it at the first hurdle. This is because with no proof of income, a lender is walking in the dark if they were to offer you a mortgage as there is no indication of the applicant’s affordability.

If this applies to you, it is recommended that you start to keep record of your declared income to help your ability to obtain finance in the future. In the meantime, we have access to specialist lenders who would be willing to assess your circumstances for lending.

6. No Credit History

Having no credit history is not uncommon, potential reasons for this may include:

Your name is not noted as a bill payer e.g. Live with parents/family such as a 1st time buyer.

Recently moved to the UK or returned after a while away

Don’t have a UK Bank account yet or credit card, utility bill, mobile phone bill, utilities etc

No permanent address or not on electoral roll

Outdated Credit History- A credit file record covers a 6 year period so borrowing over this period is visible on a credit report so if you have not borrowed in the last 6 years then this could mean you end up with no credit history e.g. Retired individual. If you have borrowed previous to this then your credit history can be proved manually.

Without a credit history, lenders have no way to prove your ability to service your debts & whether you are good at meeting repayments. Lenders will carry out a credit check on an applicant which shows their credit file. This is often criticised as being de-humanising as it categorises individuals as undesirable applicants purely because they haven’t taken out a loan or credit card but this doesn’t always mean they are not able to service their debts.

Often people don’t realise they actually do have a credit history e.g. through their phone contract. In the event that you have no credit history you can prove your financial capability:

Find your employment records e.g. payslips, invoices, bank records

Evidence of rent payments made on time

Any bills in your name that have been paid on time

These will help us build a profile of you as an applicant to demonstrate to the lender your financial management.

7. Low Credit Score

If you have a Low credit score, most applications through mainstream & High Street lenders are likely to be rejected. You will require specialist lenders who tend to only be accessible through brokers.

All lenders create a risk profile for applicants upon assessing their credit record. A low credit score will mean lenders view you as a riskier candidate. This is likely to result in. a higher interest rate should you be accepted for a mortgage or may not be able to borrow as much. As a result of this, you may have to make up any borrowing shortfall yourself e.g., through a larger deposit.

8. IVA's

An Individual Voluntary Agreement represents a formal but legally binding agreement between yourself and your creditors over the arrangement of paying your debts back i.e. personal loans, overdrafts, credit card debts, HMRC liabilities etc.

IVAs can only be arranged if at least 75% of your creditors agree to the arrangement. An IVA must be set up through an insolvency practitioner who will assess how much you owe & the necessary duration of the agreement to pay back your debts. You should not incur any upfront charges, but an insolvency practitioner will generally apply their own fees for their service- generally an IVA set up fee & a handling fee, both of which will be added to your monthly debt payments.

Such Agreements generally allow you to pay off you debts over a specified period, this agreement will be enforced by the court so you & your creditors will have to stick to it. An IVA is useful because your creditors are not able to chase you for these debts any further since there is a court order, whilst creditors must also agree to freeze the interest on the amount owed so the debt wont build any further. This provides clarity on the amount to be repaid & when the entire debt will be settled.

An IVA will show on your credit file & lenders generally don’t entertain IVA applicants, whether you remain in an IVA or have recently finished your IVA, since it signals previous credit issues in repaying your creditors. However, this does not mean that all lenders will deny an IVA applicant. We have access to Specialist lenders who will consider you & offer competitive rates to those who have previously finished or currently entered into an IVA.

9. CCJ's

A CCJ is a County Court Judgement, which is a court order issued against you in England, Wales & Northern Ireland when you don’t repay money you owe to your creditors. This is generally a last resort in the event that a payment plan has not been followed or failed to be arranged. A CCJ issued against you means your name will be registered in the Register of Judgements, Orders & Fines. A CCJ will order that you pay off your debt either in instalments or a lump sum one off payment. A CCJ can be a dragged out process so it is unlikely that an individual is unaware they have been issued with a CCJ, normally you will have received several bill reminders, formal letters, creditor payment requests etc before a CCJ process is instigated.

Since CCJs appear on your credit file, lenders tend to disapprove of such applicants. However, some lenders will review and accept you subject to the CCJ being repaid in full or even partially! Approval with a CCJ will rely on a few factors such as:

How recent the CCJ occurred
How many CCJS are on your credit file
The amount owed under the CCJ
Whether the CCJ debt has been settled
Your deposit amount compared to the borrowing amount requested
Alternative adverse credit marks on your credit report

10. Bankruptcy

Bankruptcy refers to the process of an insolvent individual declaring they can no longer make their repayments on their debts when they fall due. Once this process has begun, the bankrupts debts and assets are passed to an appointed insolvency practitioner/ trustee in bankruptcy. The insolvency practitioner/ trustee will hold the authority to seize and sell the bankrupts assets in order to repay the bankrupts creditors. Bankruptcy lasts generally for 12 months, in which time the bankrupts financial affairs are managed by the trustee. Bankruptcy can be voluntarily entered into if the individual believes they are unable to repay their debts, or it can be instigated by a creditor if they are owed more than £5,000.

Whilst Bankrupt, the individual is referred to as undischarged. In this event, can only apply for nominal amount of credit – usually anything more than £500 will require you to voluntarily declare your bankruptcy. After the 12 months, the individual is now a discharged bankrupt whereby debts have been repaid & any remaining unsecured debts will be written off. However, even when discharged, the previous Bankruptcy can significantly affect your ability to obtain mortgage finance for the future. This will be declared on your credit file for 6 years & you will be required to disclose your previous bankruptcy to lenders. To improve your chances of being acceptance, you will require a specialist lender who are not available directly to borrowers. We can help arrange you a mortgage through our range of specialist lenders to ensure as a previous bankrupt you get the approval you are after.

11. Defaults

A Default appears on your credit file when a creditor closes your account because you have missed payments, this will show up regardless of the amount owed even if this is a small amount owed on a phone bill! A Default will occur after missing payments for a period of 3 to 6 months, depending on the creditors default terms.

The creditor will send you a default notice before closure of your account with the lender which acts as a request from them to remind you to bring your payments up to date withion a specified time frame (usually around 2 weeks). Default Notices are not visible on a credit report so if payments are made in accordance with a default notice you can be sure to avoid a default highlighted on your credit report.

Lenders don’t treat all defaults the same. For instance, a mobile phone bill default will not be viewed with the same severity as a secured loan default. However, those with mortgage arrear defaults will know the struggle of obtaining mortgage finance or re-mortgaging once this is striked against their credit report, especially when this is in conjunction with other adverse credit issues like CCJs, IVAs or Bankruptcy.

Overall, the complexity of getting a mortgage with a default on your record depends on the type of default. Although it is an uphill battle, it is not impossible to get a mortgage under these circumstances & there are ways to improve your favourability as an applicant to a lender e.g increase deposit size. We can offer you a wealth of advice & access to specialist lenders to give you the best chance of finding a competitive deal that’s right for you, regardless of your default.

12. Self Employed No Accounts

Mortgage lenders treat self-employed profits the equivalent as an employee’s earnings. Mortgage lenders want as much proof as possible to confirm that you earn what you claim you do so they can subsequently assess your affordability for borrowing purposes. Lenders have a duty to lend responsibly & therefore are cautious to strictly lend to those who are able to prove they can afford monthly repayments. They will want you to show them you have a steady & secure income which is going to project well into the term of the mortgage.

After 1 year’s worth of accounts, most lenders will want to see your 1st year tax return to assess your affordability. Generally, lenders will want 3 year’s worth of accounts as this gives a clearer indication of your earnings and how healthy your accounts are over a more sustained period, anything less than this lenders will not proceed with the same confidence in potentially granting a mortgage. Therefore, to have no accounts will prove to be a large obstacle in applying to lenders, especially mainstream ones. Specialist lenders exist who tailor their services in helping those in these circumstances, these are only available through brokers like ourselves.

13. Missed / Late Mortgage Payments

It is important to distinguish between late payments & missed payments:

Late: The bill is paid but after it has fallen due, it is therefore recorded on your credit file as a late payment.

Missed: The bill is yet to be paid. If left long enough or more than one payment is missed this can become a payment default.

Arrears: When a sum of Money is owed, your account is described as being “in arrears”.

Lenders will tend to view late/missed payments more seriously when these relate to secured loans e.g. Mortgages secured against property rather than unsecured e.g. credit card bills, personal loans.

Creditors can only record a payment as late if the payment is outstanding for 30 days after it falls due. Many people unintentionally miss or are late to make payments, this is often understandable from a lender’s perspective. For example, if a payment is made 5 days late because you were not paid until 5 days after the bill was due then this wouldn’t be marked on your credit file as late.

It is important to bear in mind that the more late/ missed payments you have on your credit file, the lower your credit score will be. Lenders will look at:

How long ago these late payments were
If the payments were missed, were they settled & if so how long after
The payment amount that was late/missed

If these factors are unfavourable, lenders may not proceed with your application or may offer you poor terms i.e. High Interest rates. If you are concerned about your late/ missed payments we can guide you to the right lenders who will not discriminate based on these.

14. Adverse Credit Problems

A poor credit score & credit report is the shop window for lenders to assess your adverse credit history. This can make a mortgage a lot harder to get approved for. There are various activities that can adversely impact your credit score which indicate to lenders you have previously & may continue to struggle managing your finances. These can include:

• No Credit History
• Bankruptcy
• Repossession
• Payday Loans
• CCJs
• IVAs
• Missed, Late or Defaulted Payments
• Incorrect address labelled on your credit file
• Not being on the electoral roll
• High Volume of credit applications
• Poor account conduct & loan serviceability

Each mortgage lender will adopt a different approach as to what they are willing to accept in terms of an applicant’s credibility in accordance with their lending criteria. We work with specialist lenders who will offer you competitive deals regardless of your circumstances, as specialist brokers in this field we are not limited to high street lenders. We will be by your side every step of the way through our unrivalled service to ensure you can finally get your mortgage.

15. Low Deposit Schemes

Getting a mortgage with a low deposit is most definitely possible you just have to know which lenders to go to & who will offer the best rate… this is where we can help with our expert guidance from a skilled advisor! Bear in mind that rates tend to be MUCH higher if you've got less than 10% deposit, so if you can push for a 10% deposit then you'll get access to a cheaper mortgage. However, this is not always the case for everyone. Saving up for a deposit can be daunting, especially for a first-time buyer in a housing market where prices are on the rise & Property investors are buying out new entrants hoping to get on the property ladder.

The minimum deposit you will need for a mortgage will be 5% in the UK, meaning at least 5% of the value or the property you wish to buy will need to be funded through your own personal funds, leaving you with a Loan to Value of 95%. Despite this being the minimum, not all lenders will offer such low deposit mortgage products.

Low deposits leave buyers with few options but we can guide you according to your circumstances, these include:

First Time Buyer: Many 95% Mortgage products are aimed at 1st time buyers as they tend to struggle with gathering the required sum of money to fund a larger deposit.

Guarantor Mortgages: Some lenders will allow a family member to act as a guarantor, either in full or limited capacity, to cover the mortgage payments if you are unable to

Gifted Deposit: These may come with higher rates, especially if they come from a 3rd party rather than a family member. The person gifting the deposit will need to complete a gifted letter to satisfy the lender they will have no interest in the purchase and it remains a non-refundable gift

Assigned Savings: In place of a deposit, some lenders will allow a family member to place a sum of money in an assigned savings account with the lender which will accumulate interest & will be passed on to the lender in the event that you cannot keep up with your repayments.

Right to Buy: This scheme allows tenants to purchase their council house at discounted value, often with a low deposit required.

Concessionary Purchases / Gifted Equity: When you have purchased a property below market value, some lenders will allow the discounted equity sum to act as a deposit, e.g. A purchase at 10% below market value may be used to form a deposit with the lender since if the lender were to repossess & sell their security, this 10% could be reclaimed if sold at true market value.

Government Scheme: The governments Mortgage schemes change regularly. At the moment

Government Mortgage deposit scheme exists, extended till end of 2023. Similar to previous Help to Buy schemes. Participating lenders must offer 5-year fixed mortgages as part of 95% LTV Products

Not different from other 95% mortgage offers outside of this scheme, only difference is from lenders perspective, where government shoulders some of the cost if lender loses money above an 80% LTV threshold e.g. if borrower fails repayments, & repossessed property sale doesn’t cover outstanding mortgage amount then the lender can be essentially reimbursed any amount in excess of 80% of the LTV.

To Qualify for the government backed scheme: Buy residential property (not 2nd or BTL), Property worth 600k or less, can’t be new build, deposit must be between 5-9%, mortgage on a repayment basis, pass lenders affordability criteria