How does a Help to Buy mortgage work if you have bad credit?

Getting onto the property ladder can feel almost completely unreachable for some people, but there are a range of government backed schemes designed to help people do just that! 

For those who are worried about a bad credit score or poor credit history, all hope is not lost. Applicants with bad credit can still get a mortgage with the Help to Buy scheme, even if they’ve been turned down by lenders in the past.

What exactly is a Help to Buy mortgage?

Help to Buy mortgages were created to help both first time buyers and those looking to move home, purchase new build properties with just a 5% deposit.

The way the scheme works means that the government provides a further loan of 20% (or 40% if you live in London) through the HCA (Homes and Communities Agency). 

This means that for example, on a property worth £100,000, buyers need a deposit of just 5% = £5,000. The government then loans the other 20% or £20,000, which means a larger, 25% deposit to purchase the property. Payments on this government loan will only begin after five years where you pay the interest only.

The government loan greatly reduces the initial mortgage repayments and at the end of the mortgage term, or if the house is sold then the government loan needs to be repaid.

Who can get a Help to Buy mortgage?

Most people are eligible if they meet the following criteria;

-       You are a first-time buyer or a current homeowner looking to move

-       You do not own any other additional properties

-       The property you want to buy is a new build

-       The purchase price is not higher than £600,000

-       You have a 5% deposit saved

How does it work if I have bad credit?

Although having bad credit can reduce the number of mortgage options available to you, it is still possible to get a good mortgage deal with fair rates and terms.

The first step is to find out your credit score and credit report so that you can fully comprehend your financial standing. These can be obtained from credit agencies such as Experian or Equifax and provide a comprehensive breakdown of the past six years. 

"Most modern banking apps are offering free credit checks and some offer advice on what you can do to improve your chances of accessing competitive mortgage rates," comments Ruban Selvanayagam of Property Solvers Auction House.

It’s also worth noting that around one in three credit reports have mistakes on them so it’s also crucial to go through your report carefully and make sure there are no errors which could be queried and possibly removed. 

Next you should speak to a specialist mortgage broker who will be able to offer expert advice on how to proceed with acquiring a Help to Buy Mortgage with bad credit.

They will have in depth knowledge of the procedures involved and relationships with specialist mortgage lenders who are more likely to consider applicants with poor credit and will be able to help guide you through the process.

Using a specialist mortgage broker can save you time and money, helping you to secure a mortgage and buy the home you’ve always wanted.