Often, lenders won't will take on someone with a bad credit file, as they are considered too much of a risk.
If a person’s file reveals they have a track record of missed credit card or loan repayments lenders typically conclude that this is a dangerous trend, and they will reject applications.
Another mark against potential homeownership is the risk of repossession – as a mortgage lender can take your house if repayments are not made.
Terry, from Upton in Northampton, had seen his finances left in tatters thanks to the antics of a long-since ex-girlfriend.
He says she racked up almost £50,000 of debt by using his credit cards without permission.
How to boost your credit score before applying for a mortgage
Mortgage lenders take a dim view on late payments.
If you've got debts, look for ways to put money aside each month to help clear your debts.
If you're struggling to meet your repayments, speak to your lenders – they may agree to a payment plan that sees the interest you owed suspended, providing you stick with the plan and make your payments in full and on time.
Next check if your outgoings are lower than your income, and look for ways to cut your spending if it is too high.
Finally, check your credit file to see what your score is. This means getting a free credit report from each of the three credit agencies – Experian, Equifax and Noddle – as you can’t tell which one a potential lender will use.
The result was a ruined credit file, which led to a string of mortgage application rejections when 45-year-old Terry and wife Charlotte, 34, a registrar, started to look for a home to buy.
It was only after an internet search highlighted Onlinemortgageadvisor.co.uk – a broker that specialises in finding mortgages for people who have struggled elsewhere – that he secured a mortgage from Kent Reliance.
Terry was able to clear his debts through working extra hours – and help from his new partner – before they started saving for a home.
In total the couple put down a £10,000 deposit for a £90,000 mortgage. The rest of the property is owned by the council and they have the option to overpay and buy the rest of the property outright.
Terry, a sustainable drainage engineer, told The Sun: “I’d just about given up hope, but within no time our broker told Charlotte and I that we had a mortgage.
"This meant we could buy our £270,000 three-storey townhouse.
"We put down a deposit… and signed up to a two year fixed-rate mortgage. We couldn’t be happier.”
Terry's story goes to show that aspiring homeowners with poor credit scores shouldn't abandon hope of buying a property.
In fact, according to financial comparison service Moneyfacts, while credit repair mortgages make up less than one in five arrangements, the number of deals available has risen by more than 100 in the six months to August.
It takes the number of these deals from 743 to 843.
But mortgages for people with poor credit score do usually come with more rigorous questions about how repayments will be met and require any credit problems to be firmly in the past.
Expect to be able to provide payslips and bank statements going back more than the usual six months.
How to get a mortgage with a poor credit score
You should check that your broker will compare the whole of the market and ask what the fees will be – brokers, such as London & Country or Onlinemortgageadvisor.co.uk, are free to use.
Don’t be tempted to start applying for mortgages with your bank or any other providers you can find.
A scattergun approach will only harm your chances of securing a mortgage, as potential lenders will check your credit file and each check that does not result in a successful mortgage application will lower your credit score.
Before going to a broker, you can use free eligibility tools to check your likelihood of getting a mortgage before applying, which means your credit score won't be hit.
Comparethemarket has recently launch such a tool as has Experian – but these only have a few lenders signed up for now meaning they don't compare the whole market.
Plus, while some lenders will offer a mortgage to people with a dodgy credit history, they will take into account a chequered past and charge higher-than-average interest.
Rates are typically 1 per cent or more above the standard two-year fixed mortgage rates, although some are more competitive.
They will also likely require larger deposits, typically of between 25 per cent and 35 per cent of the property’s purchase price.
And they will usually attract higher product fees of around £1,500 rather than £500.
Use a mortgage broker to find the best deal for your needs.
Find out how one couple refused a mortgage due to bad credit history found a way to buy a £158,000 two-bed house.
Here's how you can boost your credit score in order to get on the property ladder.
Plus, we reveal the banks you can get a mortgage from WITHOUT having to show your statements.
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