Joint Mortgage With One Bad Credit Applicant

There are a variety of different types of bad credit that can cause problems for joint borrowers seeking to obtain a mortgage. Incomes are being subjected to increasing numbers of financial pressures, which means that credit problems stemming from circumstances that lie outside of your control are sometimes unavoidable.

 You might, for example, have experienced or are currently experiencing one of the following issues:

• Defaults
• CCJs
• Late payments
• Repossessions
• Bankruptcy

If you have a history of bad credit, lenders will typically ask for more detailed explanations of your circumstances. They might, for example, ask some of the following questions:

• What type of credit problem have you experienced?
• Why did this issue occur?
• Was it a one-off or a recurring problem?
• When did it happen?
• How large was the debt?
• Has the debt now been repaid or subject to a current repayment plan?

 Additionally, most lenders will also want to understand a range of other factors before they will make their final lending decision, including:

• Age of applicants
• Marital status
• Requested mortgage term 
• Deposit amount 
• Whether applicants are employed or self-employed
• Credit commitments currently outstanding

It is normal to feel overwhelmed by the level of information that lenders will request, however it is important to remember that it is still possible to successfully secure a joint mortgage if one partner has bad credit.

Let’s take a closer look at some of the credit issues mentioned above to see how they might impact any lending decisions that could ultimately be made following your joint mortgage bad credit application.

If you haven’t kept up with credit agreement repayments and the lender views the contractual relationship to have ended, a default will occur. Defaults typically occur if no payments are made in 6 months, but they can be applied at any time. Some lenders accept mortgage applicants with defaults on their record, however, they will want to know:

• When a default was registered
• The default amount, as some lenders will impose an upper limit
• Whether the default was registered on an unsecured or secured account. Secured defaults, such as a secured loan or mortgage are considered much higher risk than unsecured defaults including credit cards

Recent defaults will be considered a higher risk than older occurrences and while some lenders will look for a 3-year clean default history, others will consider applicants with recent defaults.

Debt management plans are agreements made between unsecured creditors and borrowers that set out affordable monthly payments that need to be made until a debt is fully cleared. Some lenders are happy to accept mortgage applications from people with DMPs but they will want to know:

• When the DMP started
• How many payments have been made
• The number of creditors listed and the total value of the DMP

Lenders will typically view DMP payments as a regular monthly commitment and will, therefore, include them in their routine affordability calculations. In most cases, you will be required to prove that your repayments have been made on time either via bank statements or official documentation that can be obtained from a debt management company.

Bankruptcy orders are issued by the courts to people who don’t have enough assets or money to clear their outstanding debts. If you want to obtain a mortgage after being declared bankrupt, lenders will want to understand:

• How long you have been discharged from bankruptcy
• Your post-bankruptcy credit record
• The circumstances surrounding your bankruptcy

Discharge usually occurs 12 months after the date of issue. While some lenders will consider applications from borrowers after 12 months, others will have criteria that state you must be discharged for at least one year before submitting your application.

Lenders have their own individual guidelines and criteria that they will consult when viewing this type of joint mortgage application. Most lenders will prefer that both applicants are detailed on the joint application and often make decisions based on the credit profile of the weakest applicant. In these cases, the poor credit profile will outweigh the good credit profile. Many high-street lenders perform credit checks for joint mortgage applications.

The application will be scored jointly, which means that borrowers are required to meet the lender’s joint credit score criteria before being accepted. There are lenders who don’t use joint credit scores at all, instead preferring to search the credit histories of both applicants to look for any problems that may conflict with their policy guidelines.

If both applicants have bad credit, lenders will fully assess the circumstances surrounding those credit issues. Often running worst case scenarios, lenders will collate every adverse credit event to determine whether anything on your credit histories violates their lending criteria.

If, for example, you have previously had a CCJ and your partner has some recent late credit repayments, lenders would apply their criteria to both of those events. If their criteria state that historic CCJs are acceptable but late credit repayments are not, your application would be denied.

If you don’t have a credit history, lenders will have no way to accurately establish whether you are a responsible borrower or a ‘good risk’. If you are in this situation you will likely find it beneficial to seek out lenders who conduct credit searches as opposed to lenders who base their decisions on credit scores.

Is it possible to leave a partner with bad credit off the mortgage?

Lenders will usually want the mortgage application to include the details of both partners who will be living at the property. This isn’t always the case, however, and some lenders will consider a single applicant provided that they meet the lending and affordability criteria.

 The source of the deposit can make this situation more complex as a person gifting a deposit is typically required to declare that they don’t have any interest in the property itself. This justification is trickier to make if they will be living in the property, however there are lenders who will accept gifted deposits on the condition that documents waiving property rights are signed should a future repossession occur.