If you’ve had some financial difficulties in the past, such as missed payments, defaults, or even bankruptcy, it can feel like getting a mortgage is out of reach.
However, if you have a good income, you’re in a better position than most to secure a mortgage, even with bad credit.
Lenders look at a variety of factors when deciding whether to approve a mortgage application, and your income is a crucial piece of the puzzle.
In this article, we’ll explore how to get a mortgage with bad credit but good income, what lenders look for, and the steps you can take to improve your chances of approval.
Table of Contents
What Does “Bad Credit” Mean?
Before we dive into how to secure a mortgage with bad credit, let’s quickly define what bad credit means.
A bad credit score usually reflects a history of missed payments, defaults, County Court Judgments (CCJs), or bankruptcies.
In the UK, your credit score is calculated by credit reference agencies such as Experian, Equifax, and TransUnion, and ranges from 300 to 850.
- 300 to 579: Considered poor or bad credit
- 580 to 669: Fair credit
- 670 to 739: Good credit
- 740 to 850: Excellent credit
The above scores are categories are just for illustrative and may be different with the credit reference agency directly.
If your credit score is on the lower end, you may have trouble getting a mortgage through traditional high-street lenders.
However, it’s still possible, especially if you have a good income and can demonstrate your ability to repay the loan.
Why Does Your Income Matter When Applying for a Mortgage?
Even if you have bad credit, having a stable and good income can work in your favour when applying for a mortgage.
Lenders need to be confident that you will be able to make the monthly repayments on time. A reliable and consistent income shows that you have the financial stability to handle mortgage repayments, even if your credit history isn’t perfect.
Lenders will typically look at your income in relation to your outgoings, including other debts and monthly commitments.
If you have a good income and can prove that your bad credit is a thing of the past, you may still be able to secure a mortgage, though you may need to jump through a few extra hoops to prove your reliability.
How to Get a Mortgage with Bad Credit but Good Income
While getting a mortgage with bad credit and good income is possible, it may require a bit more effort.
Follow these steps to improve your chances of approval:
1. Check Your Credit Report and Score
Before applying for a mortgage, it’s important to know where you stand with your credit.
Get a copy of your credit report from one of the credit reference agencies such as Experian, Equifax, or TransUnion, and check for any errors or outdated information.
Sometimes, issues such as late payments or debts you’ve already settled can stay on your credit report, affecting your score.
If you notice any mistakes, contact the relevant credit reference agency to dispute the errors. Cleaning up your credit report before applying for a mortgage can improve your chances of approval, even if you still have a poor credit score.
2. Save for a Larger Deposit
One of the easiest ways to increase your chances of getting a mortgage with bad credit is by saving for a larger deposit.
Lenders tend to be more willing to lend if you have a significant amount of equity in the property, as it reduces their risk.
A larger deposit shows the lender that you’re financially responsible and invested in the property, even if your credit history isn’t ideal and also there is more equity available should they need to repossess and sell the property.
The more you can put down, the better your chances. Ideally, aim for a deposit of at least 15-20% of the property’s value.
Use our LTV (loan-to-value) calculator for easy calculations.
Loan-To-Value (LTV) Calculator
However, some lenders may accept a smaller deposit, especially if your income is good and you have a solid explanation for your past credit problems.
3. Consider Specialist Lenders
High-street lenders such as HSBC, Barclays, or Santander tend to be more risk-averse and may turn down your application if you have bad credit, regardless of your income.
However, specialist lenders and subprime mortgage providers cater to applicants with poor credit histories.
These lenders are more likely to consider your income and other factors when making their decision.
While interest rates may be higher with a specialist lender, securing a mortgage is still possible with the right financial profile.
4. Demonstrate Your Improved Financial Situation
If your bad credit was caused by past mistakes, it’s important to show that you’ve taken steps to improve your financial situation.
Lenders may ask for proof that your credit problems are behind you. Here’s how you can demonstrate this:
- Clear any existing debts: If possible, clear outstanding debts and show that you’re living within your means.
- Provide evidence of improved spending habits: Show that you have been consistent with payments and have avoided further credit issues.
- Show a strong savings history: Having a healthy savings account and emergency fund can show lenders that you’re financially stable.
A solid track record of responsible money management can make a big difference in getting a mortgage approval.
5. Consult a Mortgage Broker
If you’re struggling to find a lender that will accept your application, it might be worth consulting with a mortgage advisor.
Brokers have access to a wider range of mortgage products, including options for people with bad credit.
They can also help you navigate the application process, improve your chances of approval, and find the best deals based on your income and credit situation.
A broker can also give you advice on how to improve your application and provide guidance on how to manage your finances to increase your eligibility for a mortgage.
Submit this quick form, and we’ll connect you with the right mortgage advisor.
6. Be Prepared for Higher Interest Rates
It’s important to keep in mind that if you have bad credit, even with a good income, you may be offered higher interest rates.
Lenders may charge higher rates to offset the risk they take on by lending to someone with a poor credit history.
While this can mean higher monthly repayments, having a good income will still allow you to manage the higher costs, as long as you stick to your budget and avoid other forms of debt.
Frequently Asked Questions(FAQs)
1. Will having bad credit affect my mortgage application?
Yes, bad credit can make it harder to get approved for a mortgage, but if you have a good income and can demonstrate financial responsibility, you may still be able to secure a loan.
2. How long does it take to improve bad credit for a mortgage?
Improving bad credit takes time, but even a few months of good financial behaviour can make a difference. It’s best to start improving your credit well before applying for a mortgage.
3. Can I get a mortgage with bad credit and a small deposit?
It’s possible, but it may be more challenging. A larger deposit can increase your chances of approval, as it reduces the lender’s risk.
4. Should I use a mortgage broker if I have bad credit?
Yes, a broker can help you find the best mortgage deals for your specific situation and advise you on how to improve your application. They will also know specific lenders criteria in relation to adverse credit.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
Our goal is simple – to provide most up-to-date and accurate mortgage information to make your mortgage journey as stress-free as possible. Have a question? Fill up the quick form and one of our mortgage advisor will connect with you.
