Credit scores have always played a dominant role in the home buying process. Because your mortgage rates largely depend on your relationship with credit. In the UK, there is no minimum credit score one needs to be eligible for buying a house. However, before getting into a deal, you should understand how your credit rating may affect your chances of getting a mortgage and the type of loan that you are likely to get.
Imagine, finding the perfect home that you had always dreamt of – a townhouse or a Ranch-style house. The real estate brokers or sellers have agreed to what you are willing to offer them and you are all set. Now, you start wondering about the mortgage so that you can proceed further. If you follow this sequence, you are likely to face a lot of obstacles.
Before finalizing any deal, study your credit ratings and finances. Understand the scores to know the amount that you can get from the lenders and your affordability. Accordingly, visit properties and choose one according to what your budget allows you. And in all of this, your credit score has a pivotal role. Know the ins and outs of how your credit score will affect your mortgage rate to make the right decision.
Representative Example: £12,000 over 66 months, 31.9% APR fixed. Monthly payment £358.22 Annual interest rate 28.01% fixed. Interest payable £11,642.52. Total repayable £23,642.52. Representative Example: £12,000 over 66 months, 31.9% APR fixed. Monthly payment £358.22 Annual interest rate 28.01% fixed. Interest payable £11,642.52. Total repayable £23,642.52. Representative Example: Loan Amount: £20950.00, Loan Term: 85 Months, Interest Rate: 23.00% PA Variable. Monthly Repayments: £537.44. Total Amount Repayable: £45,682.15. This example includes a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00 Representative Example: Loan Amount: £20950.00, Loan Term: 85 Months, Interest Rate: 23.00% PA Variable. Monthly Repayments: £537.44. Total Amount Repayable: £45,682.15. This example includes a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00 Representative Example: Borrowing £3000 over 36 months with a representative APR of 39.9% (variable),the amount payable would be £134.21 a month,with a total cost of credit of £1831.56 and a total amount payable of £4831.56. Representative Example: Borrowing £3000 over 36 months with a representative APR of 39.9% (variable),the amount payable would be £134.21 a month,with a total cost of credit of £1831.56 and a total amount payable of £4831.56.Maximise your options: Compare and apply for loans below with LoanTube
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Norwich Trust
Loan Term
1 -
10 years
4.8/5
Representative APR
31.90%
Minimum Age
21 Years
4.8/5
Norwich Trust
Loan Amount
£4000 -
£20000
Loan Term
1 -
10 years
Representative APR
31.90%
Minimum Age
21 Years
Minimum Income
£2000 per month
Loan Amount
£5000 -
£100000
Evolution Money Loans
Loan Term
1 -
20 years
4.5/5
Representative APR
28.96%
Minimum Age
18 years
4.5/5
Evolution Money Loans
Loan Amount
£5000 -
£100000
Loan Term
1 -
20 years
Representative APR
28.96%
Minimum Age
18 years
Minimum Income
Not mentioned
Loan Amount
£1000 -
£10000
1Plus1 Guarantor Loans
Loan Term
1 -
5 years
4.4/5
Representative APR
39.90%
Minimum Age
18 years
4.4/5
1Plus1 Guarantor Loans
Loan Amount
£1000 -
£10000
Loan Term
1 -
5 years
Representative APR
39.90%
Minimum Age
18 years
Minimum Income
Not mentioned
What’s in this blog?
- What credit score do you need to buy a house?
- What is a good credit score that is needed?
- How your credit score affects your mortgage rates?
- How to improve your score before applying for a mortgage?
What credit score do you need to buy a house?
- There is no fixed or minimum credit score that you need to buy a house in the UK. However, if you are considering to apply for a mortgage, your credit score must be good enough. Now, what does a “good enough” credit score means? Well, a good enough credit score must be high enough for the mortgage lenders to be willing to offer you a deal.
- As there are different types of mortgage loans in the market, the credit score requirement will also vary from loan to loan. Also, different lenders have different lending criteria. Some lenders may extend you an offer even if you have a low credit score. While some of the lenders may want your credit history to be flawless.
- With a bad or very bad credit score, the chances of getting approved for a mortgage is likely to remain lower. But if you have an excellent or average credit rating, a lot of mortgage lenders will be willing to offer you a loan.
What is a good credit score for a mortgage in the UK?
- There are 3 Credit Reference Agencies in the UK namely, Equifax, Experian, and TransUnion. These CRAs use different scoring models. Hence, a score that is considered good by an agency will not necessarily be the same as another agency. For example, an excellent score with Equifax will typically be about 475. However, according to Experian, a credit score of 700 or above is considered to be decent. And the score of 800 or above is considered to be excellent. Similarly, a score of 628-710 is considered excellent in TransUnion.
- This variation in the credit score will not impact your ability to borrow money at any cost. If the information available with these agencies are updated and correct, your ability to borrow will not be affected.
- Another fact is, if you want to put down a smaller mortgage deposit, your credit score needs to be excellent. That means, the better your score, the easier it will be for you to find and compare multiple deals.
How your credit score affects your mortgage rates?
- Your credit score has a deciding role for the interest rate and payment terms that you will be offered from lenders. This is because lenders use a risk-based pricing mechanism to assess the risk that is involved. Your credit history provides a quick snapshot of your relationship with money. Therefore, lenders consider your credit score to decide on your loan application.
- Having an excellent credit score, making timely repayments and keeping up with your bills make it easier for you to find multiple offers. And if you have an average credit score, then you will get offers that have slightly high-interest rates. Similarly, people with a low credit score will find it difficult to get good and favourable options to choose from. Most of the offers they will receive may have a high rate of interest as the risk factor involved is high.
How to improve your credit score before applying for a mortgage?
You cannot control the way your mortgage application will be assessed by the lenders. But there are a few factors that are taken into consideration when you apply for a loan. Apart from your credit score, your debt-to-income ratio, credit utilization ratio, monthly income, expenses are also assessed. If you know where you stand before applying, it will save you a lot of time and effort.
Here are a few ways you can improve your credit score before applying:
- Do not apply for new credit cards, personal loans, overdrafts or any other form of credit before you apply for a mortgage. Because when you apply for a financial product, your credit report is assessed, and in this process, a few points are knocked off your score. As your score gets lower, there are chances that you may not get attractive mortgage offers.
- It is always wise to clear your existing debts before you apply for a mortgage. Generally, mortgages are taken for a long period. That means, your current debt profile should be able to convince the mortgage lender that you can afford to repay the loan on time. And you will not miss any of the loan repayments.
- Check your credit report for any errors. Keeping an eye on your report will help you to gauge whether you are taking the right path. And if you spot some errors, get them fixed before applying as your credit report is an essential tool that is used to assess your profile.
Buying a house or any other property requires financial planning. It’s not just about how much you can pay or what kind of mortgage you’re going to need. When you apply for a mortgage, you’ll need to make sure you’re creditworthy in the eyes of the lender. This means they’ll say you’re going to keep up on all your mortgage instalments.
Read more about the level of income that you must have to buy a house in the UK.
Disclaimer: Please bear in mind that a good credit score is a necessary but not necessarily a sufficient condition for a loan approval, other factors will be taken into consideration.
