Getting a Joint Mortgage with Bad Credit
Looking to get a mortgage with your partner or spouse but worried that one of you has bad credit? Many people are anxious about looking for a joint mortgage because they aren’t sure how they work or how one person’s credit score might affect a joint mortgage application, but don’t worry, we’ve got you covered.
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What’s in this article
In this guide we’ve got everything you need to know about the process, from what ‘bad credit’ actually means to help understanding your credit reports. We’ll look at how bad credit might impact the interest rates you’re offered, and we’ll discuss how a broker can help you find the best bad credit joint mortgage deals.
What is a joint mortgage?
A joint mortgage, as the name suggests, is a mortgage taken out by more than one person. Most typically this is a married or cohabiting couple but it could be any other arrangement of people, such as siblings or friends. In fact, there are some lenders who are prepared to include up to four people together in a joint mortgage, meaning a group of friends could buy a house together.
It’s important to remember with a joint mortgage that everyone is responsible for repayments. This means that if one person on the mortgage stops contributing, the other people on the mortgage will be responsible for their share. This is why joint mortgages are more common with couples than friends, as it’s a big financial commitment.
What are the benefits of a joint mortgage?
The main benefit of a joint mortgage is the pooling of resources. Normally lenders set a maximum that they will lend you, based on a multiple of your annual income, normally between 4 and 4.5. For a joint mortgage, this multiple is applied to the combined income of all applicants, meaning you can potentially borrow a lot more. The same is true of combining savings to create a bigger deposit.
How does legal ownership work on a joint mortgage?
When you take out a joint mortgage, you’ll need to decide on how you want the legal ownership to be set up. There are two ways of doing this, depending on your relationship with the other person and what flexibility and freedom you want from each other.
Normally couples getting a joint mortgage opt to be joint tenants. As joint tenants you essentially act like one person owning the house - the other person inherits automatically should one die, profits are split equally if the property is sold and you have equal rights to the home.
A ‘tenants in common’ structure on the other hand allows for more specificity around how the property is split. Each person owns a share of the house, but this can be set up however you choose. For example, if two friends buy the house together but one contributes the majority of the deposit, they might choose to split the property differently to reflect that. Tenants in common can sell their shares separately and somebody else can inherit them when they die - they don’t have to automatically go to the other mortgage holder.
How does bad credit affect a joint mortgage?
While a benefit of a joint mortgage is that everyone’s incomes are combined for affordability purposes, this works both ways, in that all applicants will also be subject to credit checks. Unfortunately you can’t just nominate one person to be checked, everybody who is going to be taking on the loan, even if that’s four of you, will have to undergo the same credit checks.
History of bad credit
If one person on the joint mortgage has a history of bad credit, this will impact the application as a whole, and could lead to your mortgage being declined.
If you are able to find a bad credit joint mortgage, which is totally possible with the right broker support, you should expect to pay higher interest rates initially. You may also find that some lenders ask for a bigger deposit to balance the higher risk they are taking.
What does it mean to have bad credit?
This is a great question and one that it’s important to understand before you make your mortgage application. The term bad credit is used widely to refer to anything from a low credit score to a previous house repossession. The thing to remember is that a lender isn’t going to simply look at the credit score you see if you log in to your own credit reports and make a judgement based on that - they will look at your whole report and any credit issues in the context of your finances as a whole.
Many people assume that a bad credit score comes from having unpaid debts, but there is a bit more to it than that and a mortgage application could get turned down for credit related issues that aren’t about whether or not you’ve kept up with your repayments.
These could include:
Lack of enough credit history
Don’t be fooled into thinking that never taking out credit is the best way to keep the perfect credit score. Having no credit at all means there’s no evidence to show lenders that you’re capable of managing credit responsibly. You’re actually better off having a couple of credit cards for example, and using them and paying them off in full every month. This is also why it’s often recommended that you leave credit card accounts open, even if you don’t use them any more.
Too many new accounts or applications
When you apply for new credit, lenders will do either a soft or a hard search to check your creditworthiness. If you have a lot of recent searches showing on your credit report, or have recently taken out a lot of new cards or loans, this will be a big red flag to lenders.
Your credit utilisation ratio
This is the amount of debt you currently hold relative to the amount you could have i.e. if you were borrowing up to the maximum levels across credit cards, store cards and overdrafts. If your credit utilisation ratio is high, this will definitely be a warning sign to lenders that even if you’re currently making all your repayments, you could be stretching yourself too thin. Lenders prefer to see credit being used in moderation, so ideally this means a debt utilisation ratio of less than 30%.
Your credit report
Probably the most important part of your credit report though is your payment history. Your credit reports will show the status of every monthly repayments on all your forms of credit, so mortgage lenders will be able to see even if you missed one payment on something four or five years ago.
Your payment history
Issues associated with your payment history range in severity from late and missed payments, defaults and CCJs through to debt management plans, individual voluntary agreements, repossession and bankruptcy. Lenders checking your report will look not only at the severity of the issue, but how long ago it occurred and the amounts and circumstances involved.
More Information
Should I check my credit reports before applying for a joint mortgage?
Yes definitely. Aside from anything else you need to make sure that all the information held on it is accurate. Imagine how devastating it would be being turned down for a mortgage based on a mistake.
Everyone who is part of the joint mortgage application should get copies of their credit reports in advance. This can either be done directly with each of the main credit reference agencies in the UK - Equifax, Experian and TransUnion - or you can use a combined service like checkmyfile.com, which pulls in information from all three into one place.
This is the time to lay all your cards on the table. Don’t imagine that you can hide any credit issues from your partner or friends - lenders will find them and it will only make it more difficult to get a mortgage if you have a first application declined. Go through your reports in detail together, so that each party knows where you stand. Information really is power here - having the facts laid out, even if they aren’t perfect, puts you in the strongest possible position for getting the mortgage you want.
Note: Checking your own credit file has no impact on your credit score so you can do this as often as you like. It’s a good idea to do it regularly to keep an eye for inaccuracies or evidence of fraudulent activity.
Should I get a single applicant mortgage if my partner has bad credit?
This is a tricky one. On the one hand it might make sense to go it alone on a mortgage if your partner has bad credit, especially if it’s a very recent or significant issue. If you apply for a mortgage by yourself then your partner’s credit won’t need to be checked and you could get a better deal.
However, there are a few things to consider before deciding to get a mortgage on your own simply because your partner has a less than spotless credit history. The first is that with only one person’s income to consider, you may me a lot more limited in terms of how much you can borrow. Most lenders will cap borrowing on a mortgage at between 4 and 4.5 times your annual salary, and so if this is based on one salary rather than two, you may struggle to get the loan you need.
Further issues might arise because of the complications in getting a single mortgage if you actually have a partner you live with, especially if you are married. Lenders prefer married couples to both be on the deeds of a property, and may see a single applicant marriage as a red flag. There can be potential issues around rights to live in the property if both partners aren’t included, and this will definitely be raised as a problem if your deposit is coming from joint savings. Unless you can show very clearly that your deposit comes from individual savings, with no contribution whatsoever from your husband or wife, then it will make it difficult to say for sure that your partner won’t have some legal claim to the house.
Should I use a mortgage broker?
Yes, absolutely. The good news is that unless the bad credit is something really very serious that has happened in the last 12 months, such as a repossession or bankruptcy, that there probably will be a joint mortgage option out there for you, it’s just a case of finding it. That’s exactly where a bad credit mortgage broker comes in.
All good brokers should be independent and have whole market access, but when you’re looking for a joint mortgage with poor credit it’s important to find a broker who specialises in securing loans for people who’ve experienced issues with debt in the past. They will have an understanding of exactly what lenders are looking for, and may have existing relationships with the specialist bad credit lenders that you might need to approach. These lenders can be much harder to research on your own, and many will only accept applications at all via a broker.
Conclusion
If you’re worried about getting a joint mortgage when one or both of you has bad credit then the important thing is not to panic. Bad credit doesn’t have to be a deal breaker, it will simply be a case of finding a specialist broker and letting them look for the best options for you.
While you may have to pay a premium to start with, you’ll have the option to remortgage once you’re back on track, and hopefully reduce your monthly repayments. The key is to be honest with your partner and your broker, to check and understand your credit reports and be positive about the future.
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