There's no getting away from the fact that obtaining a self-employed mortgage is more difficult if you have bad credit.
Lenders are understandably more cautious and often charge higher interest rates to account for the increased risk. But securing an affordable deal is absolutely possible.
Your chances of success largely depend on the severity of the adverse credit history, and how recently it occurred.
It's also important to get the right advice by speaking to an mortgage adviser experienced in adverse criteria for self-employed applicants, as they can source the most suitable lender and mortgage product for your specific circumstances.
Before then, this guide explains how banks and building societies assess mortgage applications from business owners with bad credit, what the eligibility criteria are, and how to improve your chances of getting approved
Can I get a self-employed mortgage with bad credit?
Yes, absolutely. Though like many things in life, the devil is in the detail.
Both mainstream and specialist lenders consider adverse credit mortgage applications, regardless of whether you're a director of a Ltd company, fixed-term contractor, sole trader or LLP partner.
That said, a low credit score is likely to reduce the pool of available lenders. Cases involving heavier adverse such as ex-bankruptcy, an IVA or multiple CCJs/defaults are usually only considered by niche, more expensive lenders not found on the high street.
What are the eligibility criteria?
The degree of tolerance for impaired credit varies enormously between lenders, but the three most important factors they look at are:
- The nature and severity of the credit event(s)
- How recently the credit event occurred
- The monetary value
Explaining the circumstances around your adverse credit
Banks and building societies search your credit record during the application process for any missed card, utility or mortgage payments, defaults, CCJs, IVAs or bankruptcy records. They'll also ask and/or check if you've ever been repossessed.
It's important to be transparent about your credit history and provide a thorough explanation for any adverse events, as the reason and context behind them can make all the difference.
Some mortgage companies manually underwrite applications and are more flexible in their approach. It's therefore vital to 'tell the story' behind your credit history.
If the bad credit was caused by a simple oversight, a partner's actions or circumstances beyond your control, the lender may look upon your case more favourably.
Get credit file inaccuracies removed
Similarly, banks and building societies will listen if you can prove any missed or late payments on your credit file, are inaccurate. For example, because of a payment dispute or banking hitch.
If the financial institution or Credit Reference Agency (CRA)has agreed an entry is inaccurate, ask them to put it in writing. Or better yet, get it removed before applying.
