Bad Credit Homeowner Loans

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ABC FinanceHomeowner LoansBad Credit
Gary Hemming

Author: Gary Hemming CeMAP CeFA CeFA CSP

20+ years experience in homeowner loans

Homeowner loans are a great option for those who own their own property and are looking to borrow money. A homeowner loan allows you to release the equity held in your property by securing finance against it.

In this guide, we break down what a bad credit homeowner loan is, who could qualify and how to get the best deal.

What is a bad credit homeowner loan?

A bad credit homeowner loan is a type of homeowner loan that is designed for borrowers with a low credit score. Bad credit homeowner loans can be taken on a fixed or variable interest rate, depending on the product chosen.

The term “bad credit” is based on your personal credit score. Lenders look at your credit history when assessing the risk of loaning money or extending a line of credit. There are three major credit rating agencies (CRAs) in the UK, Equifax, Experian and TransUnion.

You can discover your score by downloading a free report from a CRA of your choice. You may need to sign up for a monthly subscription, but you can download the report and cancel before you are charged. Different CRAs define credit scores as follows.

Score out of 999
Equifax Score out of 1000TransUnion Score out of 710
Very Poor560 or lowerN/A550 or lower
Poor561 – 720438 or lower551 – 565
Fair721 – 880439 – 530566 – 603
Good881 – 960531 – 670604 – 627
Very GoodN/A671 – 810N/A
Excellent961 or higher811 or higher628 or higher

If your credit score is considered poor or very poor, you will likely only find your borrowing options considerably more limited. Every lender is different, but you may only be eligible for bad credit products.

Read more: Fixed rate homeowner loans.

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Can I get a homeowner loan with a bad credit history?

Yes, you can get a homeowner loan with a bad credit history. Putting up a property as collateral for the loan reassures most lenders. That said, your application must be individually assessed based on your personal circumstances.

One of the most significant ranking factors will be the circumstances that led to your poor credit score and how long ago they arose. Late repayments on credit cards or defaults, for example, will impact your credit score but can be overlooked – especially if you can provide a compelling explanation for why you were late.

Missed mortgage payments are less likely to be overlooked. Defaulting on a mortgage repayment may result in your current lender refusing consent for a second charge. If you’re still in arrears, or won’t clear the arrears before your homeowner loan is released, your chances of approval will reduce.

What can a bad credit homeowner loan be used for?

There are many reasons why you may want to take out a bad credit homeowner loan. These include:

Debt consolidation

If your credit score is being impacted by a range of credit cards and loans, and you’re struggling to keep up with the repayments (as well as wasting money on interest), you could consolidate. Keeping up with these payments will boost your credit score, as you’ll just have one outgoing payment each month.

Consolidating your debt means you’re repaying multiple facilities by taking out one, larger loan. Usually at a lower monthly cost than your current outgoings. Carefully review the numbers, though, as you may end up paying back more interest overall if you extend your loan term.

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Home improvements

A home is an investment, and keeping on top of major structural components costs money. If you need a new roof, major plumbing or electrical work, double glazing or an extension any of these tasks will cost a great deal, and you may need a loan to make them a reality.

One-off expenses

On occasion, we need to find a large sum of money to pay for something. A new car, for example, is a substantial outlay, especially if you’re not expecting it. If you have a poor credit score, you may not be accepted for vehicle finance, but with a bad credit homeowner loan, your chances of approval are much higher.

Buying a second property

Homeowner loans can be used to finance the purchase of a second property. Whether you’re looking to raise a deposit or the full purchase price, a secured homeowner loan can help.

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Bad credit homeowner loan rates

We can offer homeowner loans for bad credit from rates of 5.75% per year. A poor credit history will often exclude you from the best interest rates on the market, but there are often low interest products that you could qualify for. Lenders consider this kind of borrowing lower risk, so you’ll gain access to slightly better interest rates than you would for an unsecured loan.

Every lender has a different policy surrounding interest rates. This is why it’s best to seek the help of a homeowner loan broker when looking for the best bad credit homeowner loan possible. An industry professional can access deals that are unavailable to the general public and potentially source you a much better interest rate than you will find by searching on your own.

Are there any other fees to pay?

As well as interest, expect to pay the following fees when taking out a bad credit homeowner loan.

  • Broker fee – Homeowner loan broker fees are the big one. Many brokers charge up to 12.5% of the loan amount, so £5,000 on a £40,000 loan. While this can usually be added to the loan, that would mean paying interest on it and having it cost you even more. We simply charge a low, fixed £1,495 broker fee for arranging bad credit homeowner loans.
  • An administration fee from the lender for setting up the loan, known as a lender arrangement fee. This can either be a fixed fee or set as a percentage of the loan.
  • An early exit fee if you plan to repay the loan before the term ends. This is designed to recoup some of the interest the lender will otherwise lose
  • Any professional fees accrued by the lender, such as a property valuation
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How much can I borrow with a bad credit homeowner loan UK?

You can borrow anything from £5,000 with no maximum loan size when taking out a bad credit homeowner loan. Homeowner loans will allow you to borrow much more than an unsecured alternative. Often, an unsecured loan is capped at £25,000.

How much you can borrow will depend on how much you can afford to repay – as well as your credit score, lenders will assess your affordability based on monthly incomings and outgoings – and the value of your property. To work out how much you could afford, try our homeowner loan calculator.

What you need to know before applying for a bad credit homeowner loan

Before applying for a bad credit homeowner loan it’s important that you understand the concept of securing a loan against your property. The most important thing to note is that you will be placing your home at risk if you fall behind on your repayments. Your home may be repossessed if you fail to maintain your monthly payments.

Is it a good idea to get a homeowner loan if I have a low credit score?

Yes, a homeowner loan can be a great way to gain access to funding, and even build your credit score, if you are sure you can keep up with the repayments. If you have doubts that you can manage a loan in your current financial circumstances, then it may not be a good idea for you personally.

How long does the application process take to complete?

Expect to wait around two to three weeks for the process of applying for a homeowner loan to complete. The period between making an application and receiving the funds is known as the application process.

The biggest delay potential delay is getting the property valued by an independent property surveyor on behalf of the lender. Some lenders may be willing to lend based on an electronic valuation (also known as an automated valuation model (AVM)) but this can’t be guaranteed.

Frequently Asked Questions

Yes, it’s possible, though not guaranteed. By their very nature, unsecured loans pose a risk to a lender. If you are prepared to secure a loan against your property, you are far likelier to keep up with repayments – and if you do not, the can recoup their funds through repossession.

Putting up your home as collateral is not a guarantee that you will be offered a secured loan, though. If your credit score is particularly low, or if you fail to meet other criteria, such as affordability rules or loan to value (LTV) you are unlikely to be offered any finance.

Yes, you must pass a credit check to get a homeowner loan. Do not try to hide your credit history from lenders – they will learn everything they need to know from this check, and attempting to conceal any adverse credit history will reflect poorly on you.

In addition to a credit check, you will need to have your home valued. The lender will arrange this as part of the application process. This is because the amount of money you can borrow will depend on the total value of your property.

The best bad credit homeowner loan lenders are Evolution Money, West One Loans and Shawbrook Bank. The best lender for you will depend on your personal circumstances, the loan amount required, the level of equity in your property and your income.

Yes, as long as you keep up with your repayments. Your credit score will need to get worse before it gets better, as a hard search from a lender will initially cost you a handful of points. Over time, your credit score will build as you make regular payments against your loan and prove your trustworthiness as a borrower.

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