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Deposit Requirements for Bad Credit Mortgages

Most bad credit mortgage applicants expect to pay a slightly higher rate to offset the lender’s risk – but will you need a minimum deposit level to qualify for an adverse credit loan?

How To Calculate The Deposit Requirements For a Bad Credit Mortgage?

If you have bad credit or are struggling to find an approval for a mortgage, being advised that you'll need to put down a larger deposit can make it feel impossible to own your own home.

However, mortgage advisors works with a vast range of specialist lenders, with some who focus on making homeownership accessible, even with a history of adverse credit.

Here we'll run through what sort of deposit level you'll usually need to find a bad credit mortgage. If you need any help with your application or don't have a sufficient deposit to be approved, give us a call on 0330 304 3040, or email the team at [email protected].

What Deposit is Required for a Bad Credit Mortgage?

Lenders are all different and will have varying mortgage requirements depending on:

  • How long ago, your credit problems occurred.
  • How much you earn.
  • The value of the property you wish to mortgage.
  • What sort of credit issues you have experienced.
  • What sort of employment you are in.
  • What sort of home you want to buy.
  • Whether you have now repaid your debts.
  • Your age.
  • Your credit score.

You will need to declare any bad credit issues on your application. The lender will cross-check this against a credit file, and failure to disclose a credit problem can be considered fraudulent.

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Based On Your Yearly Income, You May Be Able To Borrow

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Most lenders will let you borrow 4.5 times your annual salary so, as long as you have a standard 10% deposit, you should be able to borrow this much.

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Depending on your personal circumstances, some lenders may let you borrow 5 times your salary.

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Lenders usually cap the amount they lend at 5.5 times your salary, so it’s unlikely you’ll be able to borrow more than this.

Why Do Bad Credit Mortgages Require a Larger Deposit?

When you offer a higher deposit, the Loan to Value ratio (how much you're borrowing against the property's value) drops. That means that the risk factor also lowers.

Therefore, many lenders will ask for a higher deposit from a bad credit applicant to offset the risk they accept in lending to you.

Below we've summarised what sort of deposit you will typically require, depending on the type of credit problems.

Credit issue

Typical minimum deposit

Having no credit history

5% to 10%

Having a low credit rating

5% to 10%

Late payments history

5% to 10%

Using an unauthorised overdraft

5% to 10%

Mortgage arrears

10% to 15%

Default payment history

10% to 15%

CCJs on your credit file

10% to 15%

Debt Management Plans

15% to 30%

IVAs

25% to 30%

Bankruptcy record

30% to 40%

Repossession history

30% to 40%

Having multiple credit issues

30% to 40%

What Deposit Do I Need for a Mortgage with a History of Arrears?

If you apply for a secured mortgage, you can get a home loan with a deposit of as little as 5%. However, that relies on your having remained up to date with your debts for the last year in most cases.

Some lenders will offer a mortgage with credit arrears provided you have no more than two late payments in the last year, as an illustration.

Unsecured loans are less likely to be approved. Many lenders will reject applicants with two or more late payments in the last six months, although this varies, and some mortgage providers are more flexible.

What Deposit Do I Need for a Mortgage with a History of CCJs?

Applying for a mortgage with a county court judgment on your credit file will usually require a deposit of at least 15% to 20% - although if you meet every other criterion, you might be able to put down a 5% deposit.

This depends on when your CCJ was registered and that it has since been satisfied, usually for at least three years.

If you have an unsatisfied CCJ on your credit file, the situation becomes trickier. Some lenders will refuse any application with a CCJ registered within the last six months.

What Deposit Do I Need for a Mortgage with a Debt Management Plan?

Again, timing is essential here. If you have a satisfied DMP on your credit report and have repaid all of the debt, you'll usually need a deposit from 15% to around 30%, depending on the lender.

Current DMPs or unsatisfied debt management plans depend on the lender's policies. Usually, you'd need a 30% deposit or more in this scenario and will require a specialist bad credit lender to be approved.

What Deposit Do I Need for a Mortgage with a History of Defaults?

As with other bad credit scenarios, the deposit you need for a mortgage with a history of defaults will depend on whether you have satisfied the debt or the defaults have yet to be repaid.

You can usually borrow up to 95% of the property value for satisfied defaults, although the lender will usually put a cap on the maximum mortgage value.

Most mortgage providers will need to see a deposit of at least 10% to 15% to consider approving the application with unsatisfied defaults.

What Deposit Do I Need for a Mortgage with a Discharged Bankruptcy?

In most cases, you cannot apply for a mortgage with bankruptcy before it is discharged. Many lenders will also require at least one or two years, and often more like three or four years to have passed to be confident that you are now financially stable.

For mortgage applicants with a discharged bankruptcy, you will need a significant deposit of around 30-40% to be considered for a mortgage.

What Deposit Do I Need for a Mortgage with an IVA?

Again, the deposit for an IVA mortgage depends on when it was registered and if you have now satisfied the debt.

IVAs registered over six years ago may not impact your mortgage application. Most lenders prefer to see at least three years have passed since the IVA was discharged to consider making an offer to lend.

Most applicants will need a deposit of 25% as a minimum.

What Deposit Do I Need for a Mortgage with a History of Late Payments?

Late payments aren't as serious as some of these other types of credit issues, so you'll usually need to have a standard deposit of around 5% to 10%.

A lot depends on whether you have evidence that you have since brought your affairs into good order and aren't likely to fall behind with payments again in the future.

What Deposit Do I Need for a Mortgage with a History of Mortgage Arrears?

Mortgage arrears can be an issue when applying for a new home loan. The lender will usually ask to know how many payments were missed within the last two years. If you missed, say, one payment in that period and explain why you have a better chance of approval.

In most cases, you can get a mortgage with up to two mortgage arrears and with a deposit of between 10% and 25%.

What Deposit Do I Need for a Mortgage with Multiple Bad Credit Issues?

Most bad credit lenders who will approve an application for a mortgage with multiple credit issues will require a high deposit of at least 30-40%.

What Deposit Do I Need for a Mortgage with Repossession History?

Repossessions are a severe credit problem, and your ability to get a new mortgage will depend on how long has passed since you had a property repossessed. If this was within the last year, you could not get a new mortgage.

Provided the repossession was at least three years ago, a bad credit lender would often be able to help. You'll need a sizable deposit of at least 30% to 40% of the property purchase price.

What Deposit Do I Need for a Mortgage with Unauthorised Overdraft Charges?

This scenario is usually similar to having a missed payment - so the lender will assess your credit report, how closely you meet other criteria and what deposit you have available.

You can generally get a mortgage with a deposit of 5%.

Are There Other Requirements for a Bad Credit Mortgage Application?

There are, yes. Lenders will look at multiple factors in addition to the deposit you have available:

  • Affordability assessments will look at what you earn vs what you spend and any other debts. Your debt to income ratio calculates a figure comparing your monthly debt repayments to your income - and usually needs to be up to 36% as a maximum.
  • The stability and history of your employment. Full time, permanent PAYE employment is the most stable prospect, but if you are self-employed, you'll usually need to provide at least two or three years of trading accounts.
  • Some lenders have upper age caps on their mortgage products, so they will only lend to applicants beneath a particular age at the end of the term.
  • The property value is essential since it determines how feasible it would be for the lender to recoup their lending in a repossession scenario. Lenders will also consider what type of property it is, with unusual constructions being less appealing than houses.

Are There Bad Credit Mortgages with a Low Deposit Value?

As we've seen, most lenders will require an excellent deposit to offset the risk of lending to an applicant with a bad credit history. However, if you have a small deposit, you can mitigate the risk in other ways, such as:

  • Demonstrating that you have a good income level and stable employment.
  • Paying off any debts that you can or working on your credit score.
  • Accessing your credit reports and updating them to remove any errors.

The higher the deposit, the better the rates you will be offered. If you have no deposit, your options will be limited since a 100% LTV mortgage isn't possible.

However, you could look at a guarantor mortgage as one option to be approved for a home loan if you don't have a deposit available.

Can I Get Help with Mortgage Costs as a Bad Credit Applicant?

Possibly, yes. There are several schemes designed to help first-time buyers, in particular, get onto the property ladder. Although not specific to bad credit, you might be able to boost your deposit value by applying:

  • Help to Buy equity loans offer an interest-free loan up to 20% of the property value for five years. You must have a 5% deposit and will need to either refinance or pay interest in the loan after five years.
  • Lifetime ISAs top up your savings by 25% a month, with a maximum contribution of £4,000 per year.
  • Shared ownership means purchasing a proportion of your property, from 25%, and paying rent to the housing association for the balance. You can apply for a shared ownership mortgage with a deposit of 5%.
  • Right to Buy is a scheme for tenants of social housing who can purchase at a significant discount. Some lenders will regard the discount instead of a deposit.
  • Family springboard mortgages are a way to offset family savings and leverage these against your mortgage application.

Should I Apply on my Own if my Partner has Bad Credit?

It very much depends. If one person on a joint mortgage application has severe credit problems, it might mean being refused, needing a higher deposit, or being quoted high-interest rates.

On the other hand, as a single applicant, you would need to prove you could keep up with the mortgage repayments with just one income.

What Deposit is Required for a Non-Residential Bad Credit Mortgage?

Buy to let mortgages usually require a deposit of at least 20% or 30% if there are any bad credit issues to consider.

For a second home, you'll also need at least a 25% deposit.

Expert Advice with Bad Credit Mortgage Deposits

To help calculate the deposit you will need for your mortgage, or working out a way to be approved for mortgage lending with bad credit and a low deposit, give the Revolution Broker team a call.

We are available on 0330 304 3040 or via email at [email protected] and offer an independent, whole-of-market solution for applicants looking for any bad credit mortgage.

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