Buying a First Home With No Deposit and Bad Credit

Buying a First Home

Affordability is one of the critical criteria to secure a new mortgage. Essentially, a lender needs to confirm they have been through appropriate checks to know you should afford the repayments – making it a responsible lending situation.

Bad credit can cause no end of issues because it impacts the lender’s perception of your ability to pay.

Mortgages tend to be one of the most significant amounts of credit we ever take out, substantially more than an average overdraft or credit card facility.

Therefore, if you’re trying to purchase your first home and have a low credit score, or bad credit history, you might find it extremely tough to secure approval through your regular bank or another high street lender.

In this guide, the Revolution Brokers team explains some of the reasons why credit is such a vital factor and how you can buy a first home even with poor credit, with support from a skilled broker. To learn more about bad credit mortgages for first-time buyers.

Also read: Helpful Tips for First-Time Homebuyers

Do Lenders Offer Mortgages to People Without a Credit History?

Perhaps more often than dire credit issues, mortgage for bad credit first time buyer can struggle because they don’t have any credit history at all.

Usually, a bad credit rating means you’ll need to offer a higher deposit or accept less competitive interest rates. Neither of those options may be manageable for a first-time buyer.

However, specialist lenders often work with applicants with a limited credit history or a poor record. They can accept people even with serious issues such as CCJs, IVAs, or bankruptcy on their files.

Much depends on:

  • The level of debt.
  • How long since you repaid the credit issues.
  • Whether you’re now up to date.
  • How severe the defaults were.

For example, some niche mortgage lenders will disregard late payments below a threshold or not consider some credit issues if they have been fully satisfied, so it’s crucial to select the right mortgage provider.

If you are a first-time buyer with no credit history, because you haven’t used borrowing before, you might still be approved through a high street bank – but the rates may be a little high.

Alternatively, give us a call, and we’ll run through advice about how to build a credit history and some of the top UK lenders extending credit to first-time buyers without a long credit record.

Are There 100% First-Time Buyer Mortgages With Bad Credit?

100% mortgages can be a complex product and very hard to come by unless you have a guarantor or another form of security to offer.

Adding to that, first-time buyer status and a poor credit record, and your chances of approval become slim.

However, there are schemes out there designed to help. For example, the mortgage guarantee scheme offers a lender assurance package to mitigate their risk and improve consumer interest rates, provided you have a minimum 5% deposit.

Guarantor Mortgages for Bad Credit First-Time Buyers

One of the most common ways to get a 100% mortgage without a deposit and bad credit is to use a guarantor mortgage.

Banks have the guarantee that someone (usually a parent) will take responsibility for your debt if you fail to make repayments, offering considerable insurance and risk prevention.

100% mortgages do have some disadvantages, in addition to the need to find a family member or friend who will act as a guarantor and has sufficient income for the lender to accept them.

  • 100% LTV mortgages charge higher interest than a mortgage with a deposit.
  • Application fees and lending charges are also higher.
  • Few lenders offer a 100% mortgage product, so choices are limited.

The other fundamental risk is that if the market changes and your home drops in value, you may owe more than you own, resulting in a negative equity situation.

Also read: Pros and Cons of Consolidating Debt With PHH Mortgage

How Can I Get a No-Deposit Mortgage Outside of 100% LTV?

As we’ve mentioned, 100% LTV isn’t an everyday product, and it’s pretty difficult to qualify for – the only usual scenario is if you have a guarantor to back your application.

Fortunately, there are lots of other ways to help you get onto the property ladder, even if you’ve got a low deposit or even none at all.

  • Help to Buy equity loans offer a 20% loan against the property value, with a minimum 5% deposit. You don’t pay any interest for up to five years and get much better mortgage deals with the 25% upfront down payment.
  • Shared Ownership schemes mean you can buy a share of a property – usually between 25% and 75%. The local authority or developer owns the balance, and you pay rent on the proportion they own.
  • First-time buyer mortgages are specifically designed for new homeowners with minimal deposits. Many lenders have products catering to this market and can provide a range of options to help you get started.
  • The mortgage guarantee scheme is a government-backed initiative, requiring a 5% deposit. The lender can offer 95% LTV, but with insurance to protect them from losses if you can’t keep up with the repayments.
  • Right to Buy mortgages help people living in council homes or social housing for over three years purchase their property at a considerable discount against market value – sometimes as high as 70%.
  • Joint mortgages mean you can pool your annual income with another person, and join up to build a higher deposit, and take out a mortgage together with more competitive terms than you’d find going it alone.

These are just some of the many schemes out there, which can prove hugely valuable for first-time buyers who have a bad credit problem or a lack of credit history and want to buy a home with a small deposit value.

Written by

Claire is a Professional and experienced Mortgage broker with over 5 years in the finance industry helping people with bad credit, investment homes, and commercial or personal finance.

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