The pandemic has had many unforeseen effects over the property market over the past year with one positive side-effect in particular for homebuyers struggling to get a mortgage… With so many people now facing financial uncertainties, lenders are having to be more flexible – and ‘complex credit mortgages’ could be on the rise.

Obtaining a mortgage with a less-than-brilliant credit score is now becoming a possibility and the trend may be on the rise. Borrowers with lower credit scores, smaller deposits, irregular work hours or higher proportions of non-salary income (such as bonuses) should become eligible for a greater number of deals if they are willing to shop around and do their research. What are known in the industry as ‘complex credit mortgages’ are predicted to become far more commonplace in 2021.

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Can I Get A Mortgage With Bad Credit?

It is possible to be approved for a mortgage to buy a property if you have a poor credit score. However, you will probably be on a higher interest rate than someone whose credit score is excellent. Buyers with a low credit score have also, in the past, been asked to pay a bigger deposit.
There is no minimum for the credit score that you have to have in order to be approved for a mortgage. When you apply for credit, mortgage lenders will instead make their decision based on their company’s lending criteria.
The better your credit score is, the more likely you will be approved for a mortgage as there is less risk involved for the lander.
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Effects Of The Pandemic

One of the more unpredictable side-effects of the Covid pandemic and its economic fallout is that with so many businesses struggling with employees furloughed on reduced income and so much economic uncertainty still looming, we might have expected lending criteria to become even more strict. This is what happened following the 2008 financial crisis. Instead, the government has made it clear that it will fight to keep the housing market afloat and prevent a crash in house prices. Since March 2020 these actions have included re-opening the property market while most of the country stayed in lockdown, introducing a stamp duty holiday (and extending it), introducing mortgage holidays, and offering guarantees on mortgages of 95%.

Similarly, lenders would much rather experience another property crash as their business depends on a steady stream of buyers. They would, of course, rather lend to buyers with faultless credit and a regular income though at this current time, such individuals are a lot harder to find.

Suddenly millions more potential borrowers find themselves in the category of ‘complex credit’ meaning banks and building societies have a choice to make: offer mortgages to the few with unaffected incomes (at the risk of the housing market grinding to a halt), or relax their criteria to cater for the ‘new normal’.

Lending Rules Relaxed

One area that may be relaxed is the length of time a borrower needs to prove that they have been in a ‘financially secure position’. At the moment, borrowers must show at least 12 months of financial stability before a lender will consider them. This measure may have to be revised in the wake of the pandemic, since so many will have experienced an unpredictable year though may have a much more reliable income ahead.

Assessment by way of credit scores will also need a rethink. Citizens Advice say that around six million people have struggled with their mortgage repayments as a direct result of the pandemic and many took advantage of the mortgage payment holidays on offer. It’s likely therefore that both lenders and credit ratings agencies will adapt their policies to reflect this. Lenders may expand their ‘complex credit’ lending activities, which should in turn benefit those who have traditionally had to work harder to get a mortgage deal, which include the self-employed and those whose income comes from multiple sources.

Coronavirus-Related Support And Mortgage Chances

Since the pandemic began, lenders and the Government have introduced various support measures for those struggling financially. These include the furlough scheme, payment holidays on credit cards, loans, payday loans, buy now pay later offers and insurance premiums.

However, it is important to note that some lenders will actually hold this against you and it may affect your chances of getting a mortgage:

  • A coronavirus-related payment holiday taken out by 31 March 2021 shouldn’t appear on your credit file but a mortgage lender can still find out about the payment holiday in other ways; they can see your outstanding credit card balance isn’t going down and can use that information when considering whether to accept you for a mortgage.
  • Payment holidays taken out from 1 April 2021 WILL appear on your credit file so if you’re planning to apply for a mortgage, think very carefully about whether you really need to take a payment holiday.
  • Fewer lenders are allowing homebuyers to use furlough income or self-employed income support scheme (SEISS) grants in support of mortgage applications. If you are currently furloughed or self-employed but unable to trade and therefore reliant on SEISS grants, you might need to wait to apply for a mortgage until your income is no longer reliant on either of these Government support schemes.

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