Written by: Danny Belton - Head of Lending
While navigating the mortgage market with a less-than-ideal credit score can seem difficult, it's important to know that a large deposit can increase your chances and improve the terms you're offered.
Understanding the impact of a low credit score
Lenders view your credit score as a window into your financial history and ability to manage debt. A low score suggests past difficulties, raising concerns about your ability to handle a mortgage. For the lender, this translates into higher risk, typically resulting in:
Application denial
In severe cases, your application might be outright rejected
Steeper interest rates
You could pay more in interest, significantly increasing the overall cost of your mortgage
Stricter loan terms
Lenders might impose stricter conditions, such as a larger deposit
The advantage of a big deposit
Here's where a substantial deposit can be your saving grace:
Reduced risk for the lender: By putting down more upfront, you borrow less, reducing the lender's risk. This demonstrates your commitment and increases their confidence in your ability to repay.
Improved loan-to-value ratio (LTV): LTV compares the loan amount to the property value. A larger deposit results in a lower LTV, making your mortgage safer for the lender and potentially qualifying you for better rates.
Taking action
Here are some key steps to get you started:
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Check your credit score: Get a free report from an official credit bureau and address any errors - if there are any
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Calculate your potential deposit: Aim for the highest possible deposit to maximise your chances
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Shop around: Compare offers from different lenders, including mortgage brokers who specialise in bad credit situations
- Seek professional advice: A mortgage adviser can guide you through the process and recommend suitable options
A low credit score presents challenges, but a larger deposit can be a powerful tool in your homeownership journey. With careful planning, research, and expert guidance, you can overcome this hurdle and unlock your dream of owning a home. Speak to one of our expert advisers today to get mortgage ready!
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
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