Historically the UK mortgage industry has been fairly inflexible in that if you didn’t have a certain amount of income it was highly unlikely you would be able to secure mortgage finance.
The sector has grown significantly over the last 20 years or so with more and more specialist mortgage providers emerging. As a consequence, there may well be opportunities to arrange mortgage finance for those who have perhaps chequered or difficult financial scenarios.
When considering the options below, it is also worth taking into account the fact that any interest rate/terms available will reflect the risk/reward ratio for the lender.
Ultimately, that is what will dictate whether an individual lender will be able to offer finance and if so, on what terms.
Continue reading where we will cover off getting a mortgage with bad debt, bad credit history, an IVA, CCJ, being self-employed, Freelancers, and maternity leave, to name a few.
Get all the nitty-gritty details
Getting a Mortgage With Bad Debt
The first thing to say with regards to bad debt is that different mortgage lenders may have very different criteria when it comes to lending money to those with chequered credit histories.
That is not to suggest that you are guaranteed to receive an offer of mortgage finance if you have bad debts, it is just that different lenders can view individual cases in very different ways.
So, what are the options to consider when applying for mortgage finance if you have bad debt?
The traditional house purchase deposit is around 15%-25% although this can vary significantly depending on the lender, the situation and the economic environment.
However, if you have a chequered credit history, then it will help your case if you are able to provide a larger than average deposit on a property purchase.
For example, if you are able to raise 50% of the purchase price, then that reduces the risk/reward ratio for a lender. Using the property as collateral against your mortgage, this would give the lender a significantly enhanced buffer zone.
Even if you are making great strides out of your difficult financial situation, the vast majority of credit file comments will remain visible to all lenders for at least six years.
So, even though it may have been five years since you had your financial troubles, it will still impact your ability to raise mortgage finance. However, if you were able to secure a guarantor against your mortgage, then this would increase your chances of success.
Obviously, the guarantor would need to offer security and be in a position to guarantee your debt, but this is definitely an option.
In simple terms, the greater the difference between your mortgage finance/accumulated assets offered as collateral, the more “insurance” for the lender.
As a consequence, this may well significantly increase your chances of securing finance even with bad debt.
It is also worth noting at this point that secured debts are not generally allowed in debt management plans should your finances worsen in the future.
Getting a Mortgage with An IVA
While IVAs are a common way of trying to reorganise your finances within the constraints of your income at the time, there are potential ramifications. On the surface, it is difficult to see how you would be able to raise finance if you are in an IVA at the time.
You are obviously in that situation because you are having financial difficulties, so how would you raise the finance for a property deposit let alone cover mortgage payments? There is nothing stopping you applying for a mortgage during your IVA, but the chances of being successful are limited.
That said, there is one potential situation where it may be possible:-
You tend to find that those administrating IVAs, the insolvency practitioners looking after your finances, may consider/request a remortgage of your property if you hold equity in excess of 5%.
This does not mean it is easy to get a remortgage during an IVA, but it is possible depending upon the applicant’s financial situation. It is not inconceivable that an individual is still honouring their mortgage payments, a secured debt while trying to manage their non-secured debt.
Therefore, in theory, the idea of remortgaging and releasing equity to help pay off debts may be possible – although likely through a specialist lender.
It is worth noting at this point that those currently in an IVA are legally obliged to seek the approval of their insolvency practitioner prior to finance applications above £500.
When it comes to arranging mortgage finance after an IVA, this is more practical, but there are also a number of challenges.
Higher Interest Charges
You should expect to pay a higher interest rate, due to the risk/reward ratio when applying for a mortgage when an IVA is still on your credit record.
As we touched on above, notes on your credit file tend to remain there for six years as a “warning” to other lenders.
However, there are specialist mortgage lenders who will consider those who have been in an IVA.
As you might have guessed, those with any kind of financial troubles would stand more chance of raising mortgage finance if they were able to secure large deposits.
However, the fact they are in financial trouble means the likelihood of raising a significant deposit might be remote.
The following table will give you an idea of the recent trend in IVAs in England and Wales:-
|Date||Total IVA Arrangement|
Many people who have experienced an IVA in the recent past, or are still in one, may fare better to focus on improving their credit rating in the short-term.
Any improvements in budgeting figures, positive change in circumstances, etc. can only help when applying for mortgage finance in the future.
Getting a Mortgage With a CCJ
A County Court Judgement (CCJ) is basically a court order made against you for failing to honour debt repayments either as an individual or company.
While these circumstances can vary widely, it is safe to say that having a CCJ on your credit file will not help you when applying for mortgage finance.
That said, there are a number of factors to consider which may well improve your chances of securing finance such as:-
Circumstances of the CCJ
There may well have been extenuating circumstances surrounding the granting of a CCJ which could be taken into account by some lenders. That said; many mortgage lenders are fairly inflexible when it comes to increased risk such as CCJs.
However, if you have been the victim of fraud or something else which was not your fault, then it may well be worth mentioning.
Age of the CCJ
The vast majority of credit notes will stay on your file for six years at which point they will be taken off, and you will be able to rebuild your credit rating.
As you may have been served a CCJ more than five years ago and consequently experienced a significant improvement in your finances, an older CCJ would certainly help your chances of securing mortgage finance.
No guarantees, but it is certainly a positive when it comes to more flexible lenders.
CCJ Has Been Satisfied
When a CCJ is marked as “satisfied”, this basically means that you have paid off the debt. It may have been a misunderstanding, administration error or something else, but even though it has been repaid, it is still a negative mark on your credit file.
That said; some mortgage lenders may well view this as a more positive factor showing that you have been responsible in the end.
However, anyone who has been served with a CCJ will immediately see a reduction in their credit rating – no matter what the circumstances.
One of the other factors which mortgage lenders will take into consideration for those applying for mortgage finance – having been served with a CCJ – is the level of debt involved.
If the amount involved was relatively small, then this may well help those lenders offering a more flexible approach to mortgage finance.
Number of CCJs
If you have more than one CCJ, then your chances of securing mortgage finance will effectively be nil. Yes, some mortgage providers will be a little more understanding with a relatively small one-off CCJ, but where they see patterns of debt default, many will run a mile.
Unfortunately for some people, once they start to get into financial difficulties, this can often lead to more claims and more difficulties – and potentially more than one CCJ.
Being Self-Employed & Getting a Mortgage
Unfortunately, we often come across an array of highly successful self-employed individuals who struggle to secure mortgage finance. If there is one often a highly successful area of business that has been undersold by the industry, it is the self-employed.
That said, where you are able to provide an array of certified information and contract details, you may still be able to arrange mortgage funding.
Indeed, we have seen the emergence of a number of specialist mortgage lenders looking towards the self-employed market where very often the perceived risk is lower in practice.
The ability to certify your income for at least two years is a very important factor when it comes to self-employed mortgage applications. Unfortunately, the days of “self-certification” have long gone having been banned by the UK regulator in 2014.
These effectively allowed self-employed individuals to present their income to mortgage lenders for affordability calculations without being certified.
It is not difficult to see the potential for manipulation of figures and potential financial difficulties further down the line!
Whether trading as a company or as an individual, you will also be asked to provide either two or three years of tax returns as well as your certified income.
This should be relatively straightforward if you provide accounts or you have an account with HMRC as an individual. Those who have manipulated their figures in the past to reduce their tax payments will pay the price when looking at mortgage finance. Many have!
Proof of Contracts
While many mortgage providers will work on your income for the last two years, there is scope to increase this if, for example, you have recently secured new contracts.
It would obviously depend upon the type, duration and income provided by these new contracts but if significant they could help with your application.
While it would depend upon the structure of the business, an individual looking at mortgage finance may have other income streams such as company dividends.
Again, if you are able to provide certified figures to your mortgage lender, this will increase your chances of securing mortgage finance.
Those trading for less than two years will struggle to secure a self-employed mortgage unless, as mentioned above, they were able to provide evidence of future secured income.
However, for many self-employed individuals, there is one major problem. Presenting their income as low as possible to reduce income tax payments at a time when they need to maximise their income to secure mortgage finance. A very difficult quandary!
Getting a Mortgage With Large Debts
On the face, it would appear fairly obvious that somebody with large debts would struggle to secure mortgage finance. That said; if for example someone had debts of £100,000 but the income of £100,000 a year, then this is not necessarily a “large debt” in the context of their financial situation.
On the flip side of the coin, someone else with a relatively modest debt of £20,000 but the income of around £10,000 a year may struggle to finance their existing debt and mortgage repayments.
It is not as cut and dried as you might assume when it comes to mortgage applications and large debts.
Some other factors to consider include:-
Debt Repayment Terms
If an individual was repaying their large debts on a long-term basis, and could quite easily afford these debt repayments and mortgage repayments, they may well be able to secure mortgage finance.
It will literally come down to the affordability factor, including income, everyday living costs, current debt repayments and potential mortgage repayments.
It is not inconceivable that somebody currently paying off a long-term loan, where they have honoured all repayments, might be able to get their hands on a larger than average deposit, with any mortgage application, the greater the deposit, the greater the buffer zone for the lender and therefore the more likelihood of better than average terms.
While some mortgage lenders may walk away from those who have other large debts, there are certainly other mortgage lenders willing to negotiate.
Where the affordability factor might, in principle be very tight, there may be opportunities to reduce living expenses and present a new budget to a mortgage lender.
The borrower would obviously need to abide by the new budget, likely including various cuts to expenditure, but it may be enough to swing the vote.
Whether looking at inheritance, pension payments, compensation claims or other types of income, it may be possible to take these into account, to at least partially offset existing large debts.
It would obviously depend upon the security of potential future income as to how this will be considered by a mortgage lender. This is certainly a means of mitigating the negative impact of existing large debts when entering negotiations.
Getting a Mortgage While on Benefits
While there is nothing, in theory, stopping anyone on benefits from applying for a mortgage, securing finance may be very challenging. Due to changes in their private life, they may have suffered illness, disability or perhaps an economic downturn has seen them made redundant.
When you consider that basic mortgage finance comes down to affordability, there are few scenarios in which someone on long-term benefits would pass such a test.
However, there may be some extenuating circumstances or scenarios which might improve their chances, such as: –
Impending Compensation Claim
If an individual was currently pursuing a compensation claim, which had perhaps been agreed in principle, this would certainly improve their financial situation.
They may be able to put down a potentially huge deposit on a property and be looking for a relatively small mortgage – which they could in theory afford.
There may also be situations where the individual in question has received a redundancy payment and are actively pursuing alternative employment.
In this scenario, the backup of the redundancy payment and potential income from alternative employment going forward may allow a guarantor to join the arrangement.
They would obviously require suitable finances/assets to support the application, but this may well be possible.
Getting a Mortgage While Being a Freelancer
Similarly to those of self-employed status, it can be challenging for freelancers to secure mortgage finance. Some may argue that a freelancer tends to have an even less secure income stream going forward than somebody in a traditional self-employed situation.
There are obvious similarities between freelancers and those who are self-employed, but there are also differences.
So, as a freelancer looking to secure mortgage finance, you would need to provide:-
Certified accounts of either two years or three years would be requested by most mortgage lenders as a means of certifying income.
Alternatively, tax returns submitted by the individual over the same period would probably suffice.
Freelancers tend to work in business sectors where their services are not always required on a regular basis. They may have regular contracts with clients, they may carry out large amounts of work over a 12 month period but short-term income, and as a consequence cash flow, is not always secure.
Providing certified contracts, perhaps a minimum guaranteed income, would help support any application but this may not always be possible.
Mortgage lenders will take into account historic income and profit projections going forward as a means of assessing whether to offer mortgage finance to a freelancer.
Any profit projections must be “realistic” because blatantly unachievable targets show an inability to be realistic. If anything, mortgage lenders would prefer the freelancer to err on the side of caution when making forward projections.
Getting a Mortgage While Not Having a Regular Income
While many people may simply dismiss mortgage applications where an individual has no regular income, some things are not always what they seem.
Many wealthy individuals are asset rich, but cash poor, which would in traditional circumstances, significantly restrict access to mortgage finance.
However, there might be some situations where long-term income may persuade some of the more flexible lenders to offer finance.
Assets to Sell
Providing collateral, thereby reducing the risk to the lender, is the key to securing any type of finance. Therefore, if an individual was able to offer additional collateral over and above the original mortgage asset, this may be sufficient.
Where there are significant assets behind the scenes, which could be liquidated to pay off a mortgage, asset rich/cash poor individuals may be able to organise an interest-only mortgage.
This would reduce their short-term mortgage repayments and allow them to pay off the mortgage capital, using other assets, at the end of the term.
An AUM (assets under management) arrangement is something regularly offered to high net worth individuals by private banks. In exchange for a competitive mortgage deal, they will not only use the property in question as collateral, but the client would also transfer part/all of their investments for management by the private bank’s investment division.
Income from investments could be used to cover monthly mortgage payments, and the private bank would receive regular management income.
For many private banks, this also offers the opportunity to expand and extend their relationship with each client, possibly offering an array of different services in the future.
Without some form of visible income in the future or asset backing, it can be difficult to secure mortgage finance.
Getting a Mortgage When Over 60
Historically the majority of UK mortgage lenders have been reluctant to enter into agreements with those over 60 years of age. The situation has changed in recent times with over 60s accounting for an ever-growing percentage of the population and people, in general, are now living longer.
Therefore, there are a number of options for those over 60 years of age looking to secure mortgage finance.
There are numerous equity release schemes available for older homeowners, although the degree of funding made available might be relatively small.
There may also be agreements whereby interest payments would be rolled over until the property was eventually sold with the initial loan capital also being repaid.
This is a fairly complicated area of mortgage finance, and professional advice should be taken.
In this day and age, there are more people working into their 60s and 70s than ever before, thereby having access to regular income.
Even if they were to pass the basic affordability calculation, it is highly likely that a mortgage lender would only allow a relatively short mortgage term.
This may be something up to 10 years compared to the average of between 20 years and 25 years – although the exact terms would depend on individual circumstances.
Getting a Mortgage While on Maternity Leave
In theory, it is possible to secure mortgage finance while on maternity leave, but there will likely be a number of conditions requested by a lender. The reality is that when on maternity leave, there is a degree of uncertainty as to future income and future intentions.
Therefore, some of the many issues to consider include: –
Confirmation of a Return to Work Date
Any mortgage lender would look for confirmation of a return to work date for those on maternity leave.
They would also require confirmation that your salary would remain at least at the level received before maternity leave.
While some mortgage lenders will consider 100% of your income when calculating affordability, others may reduce this to 50% to reflect any future uncertainty. This would obviously have a significant impact upon your level of potential borrowings and even the ability to secure a mortgage.
It is worth noting that in relation to a mortgage application, both maternity and paternity leave are treated as one and the same.
As you will see from the above information, there are often ways and means of securing finance even for those who have had troubled financial pasts or indeed ongoing challenges.
When we get down to the basics, it is a simple calculation, the risk/reward ratio. The more income and the more assets the borrower is able to offer the lender then the more chance of securing finance.
For those in more challenging situations, it is sensible to take specialist financial advice and even consider utilising the services of a mortgage broker.
How Can The Mortgage Bank Help?
Here at The Mortgage Bank, we have partnered with some of the UK’s leading mortgage brokers.
They have already helped thousands of people get the best remortgage deal even people that have been refused before, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.