A Friendly Guide: Mortgage Types and Rates for Bad Credit
If you have adverse credit history, borrowing to buy or remortgage a property can feel challenging. Missed payments, defaults, County Court Judgments (CCJs), or other credit issues may mean that standard mortgage products are out of reach — or at least come with higher costs.
This guide explains mortgage types and rates for bad credit in a clear, accessible way. It describes the main options people often explore when their credit history isn’t perfect, how interest rates are generally structured in such cases, and what factors lenders typically take into account. The information below is provided for general guidance only and does not constitute regulated mortgage advice.
Understanding Credit and Risk
Mortgage lenders assess risk when deciding whether to lend and on what terms. Credit history is one part of that assessment, but it is not the whole picture. Lenders also consider:
- Income and employment stability
- Deposit size and loan-to-value (LTV)
- Affordability based on income vs monthly outgoings
- Property type and value
Where credit history is adverse, lenders sometimes require larger deposits or apply more stringent interest rate policies.
Mortgage Types That May Be Relevant with Bad Credit
There is no single “bad credit mortgage product.” Instead, borrowers with a history of credit issues often consider the following types of mortgages, depending on circumstances:
1. Standard Residential Mortgages (Near-Prime)
Some mainstream lenders will consider applications where adverse credit issues are minor or historic, particularly where:
- Missed payments occurred several years ago
- Payments have been consistent and on time recently
- Affordability is strong with a solid deposit
These products often resemble standard residential mortgages, but the interest rates offered may reflect credit risk.
2. Specialist or Non-Standard Mortgages
These are products offered by lenders that are prepared to assess applications on a case-by-case basis rather than relying purely on automated credit scoring. Features often include:
- More flexibility around past credit issues
- Manual underwriting to understand the context of adverse credit
- Larger required deposits in many cases
- Higher interest rates than mainstream options
Specialist mortgages are designed to reflect higher perceived risk while still providing a route to borrowing.
3. Remortgage for Equity Release
If you already own a property and have built up equity, some borrowers consider remortgaging to release that equity. While not strictly a “bad credit mortgage type,” it can provide access to funds without applying for a new first-charge mortgage on another property.
Lenders still assess adverse credit and affordability for remortgage applications.
4. Joint Borrower or Guarantor Arrangements
Two alternative structures sometimes explored where credit issues limit borrowing on your own:
- Joint Borrower — applying with another person whose income and credit profile support the application
- Guarantor Mortgage — where someone (often a family member) guarantees payment if you cannot meet the monthly repayments
Both structures involve shared responsibility and should be considered carefully, as they affect all parties’ financial positions.
How Interest Rates Work with Bad Credit
Interest rates for mortgage products are influenced by lender assessment of risk. With adverse credit:
Higher Rates Are Common
Mortgage rates for borrowers with bad credit are often higher than those for applicants with strong credit histories. This is because lenders price in perceived risk — the greater the risk, the higher the cost may be.
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Rates Vary Between Lenders and Products
Different lenders have different risk appetites. Some near-prime and specialist lenders have more competitive rates for certain credit profiles, while others apply significant premium charges.
Fixed vs Variable Rates
Borrowers with bad credit can find both fixed and variable rate products, but the specific availability and cost vary:
- Fixed-Rate Mortgages — interest rate stays the same for a set period. These can offer certainty but may be priced higher in some cases due to risk.
- Variable-Rate Mortgages — interest rate can change over time. These can fluctuate with the lender’s standard variable rate or a base rate benchmark.
Whether fixed or variable is preferable depends on personal circumstances, market conditions, and lender policy.
What Affects Mortgage Rates for Bad Credit
Several factors influence the interest rate you may be offered:
Loan-to-Value (LTV)
LTV is the percentage of the property value you borrow. A lower LTV (larger deposit) is generally viewed more favourably and can improve access to competitive rates.
Deposit Size
Larger deposits usually reduce risk for lenders and may lead to better rates, even where credit issues exist.
Type and Age of Credit Issues
Historic, isolated credit problems (for example, a missed payment many years ago followed by a sustained period of good behaviour) are often treated differently from recent or repeated issues.
Income and Affordability
Stable income and strong affordability can help balance adverse credit in the lender’s assessment. Lenders may apply stress tests on affordability to see how payments could respond to interest rate changes.
Market Conditions
Mortgage rates also change based on economic conditions, market competition, and regulatory factors. The bad credit mortgage market reflects these broader trends.
Typical Expectations for Borrowers with Bad Credit
People exploring mortgage options with bad credit often experience some of the following:
- Fewer product choices than applicants with strong credit histories
- Higher interest rates than standard products
- Larger deposits required to secure borrowing
- More detailed underwriting reviews of the application
- Greater scrutiny of bank statements and spending habits
Understanding these typical features helps set practical expectations.
Steps to Improve Mortgage Options
While credit history cannot always be changed quickly, there are steps that many applicants consider before applying:
Review Your Credit Report
Understanding exactly what is on your credit file allows you to correct errors and plan for improvements.
Build Up a Larger Deposit
A bigger deposit reduces loan-to-value and can significantly improve lender confidence.
Reduce Unsecured Debt
Lower levels of unsecured debt can improve affordability and demonstrate responsible financial behaviour.
Maintain Consistent Payments
A period of good credit conduct, with on-time payments, can show lenders improved financial management.
These steps do not guarantee access to better rates or lenders, but they often form part of a stronger overall application.
Common Misconceptions About Bad Credit Mortgages
“There’s Just One Bad Credit Mortgage Type”
In reality, options vary from near-prime mainstream products to specialist mortgages, each with different criteria.
“Bad Credit Means No Mortgage”
This is not necessarily true. Many lenders consider the wider financial picture, not just credit history alone.
“Rate Is Fixed for Life”
Mortgage rates are agreed for defined periods, after which terms may change unless remortgaged again.
Preparing to Apply
Being prepared can improve the application experience. Many borrowers take time to:
- Review their credit reports in advance
- Gather necessary documentation (proof of income, bank statements, identity verification)
- Understand how different mortgage types work
- Speak with a qualified adviser if needed to clarify options
Preparation does not guarantee any particular outcome but helps reduce uncertainty.
Summary
There is no single “mortgage type for bad credit,” but a range of mortgage options that may be more suitable for people with adverse credit histories. These include mainstream near-prime products where credit issues are minor or historic, and specialist mortgages where applications are assessed more holistically. Mortgage rates for bad credit can be higher and deposits larger, reflecting perceived lender risk.
Understanding how mortgage types and rates vary — and what lenders typically consider — can help set clear expectations before applying.
This article provides general information only. For personalised guidance, regulated mortgage advice is required.
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Important information: Mortgage Bridge provides information only and acts as a mortgage introducer. We do not provide mortgage advice or make lender recommendations. We can introduce you to an FCA-regulated mortgage adviser who can provide personalised mortgage advice.