This page is for Australians who currently have a bad credit file and need a home loan.
It could be that you have had your mortgage application knocked back by a major bank or lender in the past.
You may not even be aware that you have a bad credit file and how it can stop you from qualifying for a home loan.
What is considered to be ‘bad credit’?
Have you missed a payment on a bill, credit card, your mortgage or any other type of debt in the past?
Such listings are considered as black marks by credit providers like banks and they can stop you from qualifying for a home loan:
- Mortgage arrears: Missed payments on your home loan. The more the number of missed payments you have had in the last six months then the more wary lenders will be. Generally, banks will not refinance your loan if you have missed just one repayment!
- Bad credit history: Adverse listings such as defaults, bankruptcy, judgments, court writs or too many credit enquiries on your Equifax credit file can make your application doubtful.
- Lender credit history: Your past credit history with the lender you are applying for. Lenders have a very long-term memory for the customers that they have had problems with in the past.
- Unpaid bills or tax: Outstanding bills such as council rates or tax bills are a type of bad credit history that may not initially show up on your credit file but may be visible on the supporting documents you need to provide.
- Company in financial trouble: If you’re the director of a company that is in financial trouble, receivership or liquidation then this can affect your personal credit history.
- Over committed: If you have too many debts for your income or your total assets are less than your total liabilities then the major banks may assess you as being insolvent or beyond help.
What information is on my credit file?
Your name, date of birth, current address, previous address, drivers licence number, employer and previous employer are information stored on your credit file.
All the loans that you have applied for in the last 5 years are a part of your credit file and they come up as “Enquiries”.
Other aspects such as court judgments, court writs and bankruptcy history are saved on your credit file, to find out more read our credit file page.
Who gets into bad credit?
Many Australians who fall into bad credit aren’t actually irresponsible or “bad people”.
Most of them have simply been involved in an unfortunate life event like divorce, loss of job, injury or business failure that has resulted in blemishes on their credit file.
People that fall into bad credit aren’t necessarily living in outer fringe suburbs either.
It’s well-known among economists that affluent suburbs are actually the most susceptible to financial stress when interest rates rise.
That’s because their mortgages tend to be much larger and they’re more highly-leveraged. That means their Loan to Value Ratios (LVRs) are higher.
Add to that the fact that wages haven’t really matched the growth in house prices and it’s easy to see how anyone can become “overexposed” and fall into a bad credit situation.
The worst part is that if you’ve missed just a couple of debt payments but have since been managing your financials positively, these listings still show up on your credit file sometimes years after you made the mistake.
The Comprehensive Credit Reporting (CCR) regime announced in 2014 can potentially help you mitigate the negative aspects of your credit file.
However, it can also mean that if you have a clear credit history but a poor repayment history you could be knocked back for a home loan.
Information like your repayment history isn’t being provided by all Australian lenders as yet but it will be something to look out for soon.
What are common financial stress indicators?
Before officially getting a black mark recorded on your credit file, there can be a definite lead up of events that can eventually result in defaults or worse.
The Household Expenditure Survey from the Australian Bureau of Statistics (ABS) found that the most common financial stress experiences included:
- Being unable to raise $2000 in a week for something important.
- Spending more money than received.
- Being unable to pay utility bills like gas, electricity or telephone on time.
- Being unable to pay registration or insurance on time.
- Pawning or sold something to make ends meet.
- Going without meals.
- Seeking assistance from welfare/community organisations.
- Seeking financial help from friends or family.
These financial stress indicators were most common with younger households, with 70% of respondents declaring that they had experienced at least one of the above scenarios in a 12-month period.
If you’re experiencing financial stress, you can always seek free financial counselling from the National Debt Helpline by calling 1800 007 007.
It’s essential that you get your financials in check first before committing to a home loan.
Why do banks knock people back for a mortgage?
Australians with bad credit can be declined for a home loan by major banks or lenders for a number of reasons.
It could be because of the type of bad credit you have or the size of your defaults but, generally speaking, simply having blemishes on your credit file can stop you from borrowing.
The reason is that it shows to the bank that you may be unreliable as a mortgage owner.
However, there are lenders that specialise in bad credit home loans and take a more common sense approach when assessing your situation.
What are bad credit home loans?
In Australia, bad credit mortgages are types of mortgages offered by non-conforming or specialist lenders.
Bad credit home loans consider all situations, especially the ones where borrowers have black marks on their credit file.
Bad credit home loans consider all situations, especially the ones where borrowers have black marks on their credit file.
They are designed to separate and help the ‘outside of the box’ applications that don’t meet the bank’s guidelines.
Types of bad credit home loans
Paid and unpaid defaults home loan
These types of bad credit home loans are offered to borrowers who have defaults on their credit file. In Australia there are generally two types of defaults lenders will look at:
- Paid defaults: Defaults that you’ve paid in full.
- Unpaid defaults: Defaults that you haven’t paid in full.
A default is a record on your credit file that shows that you have an overdue account such as a personal loan, credit card bill, utility bill or phone bill.
It’s classed as being overdue if the payment is 60 days late or if the lender has been unable to contact you.
Having a default on your credit file will likely get you declined with most major banks as this is a sign of your inability to pay your debts.
Discharged bankrupt home loan
These types of bad credit home loans are offered to borrowers who were bankrupt and are now discharged. There are lenders in Australia that will lend you money to buy a property the day after you become discharged bankrupt!
The term ‘discharged’ is purely an automatic process of the law which releases the bankrupt person from bankruptcy.
Once you are discharged, you are no longer bankrupt and no longer required to have limited assets and no overseas travel.
It also means that you’re able to apply for credit again.
Part 9 debt agreement
These types of bad credit home loans are offered to borrowers who entered a Part IX Agreement and have completed the agreement. In Australia, if you can’t pay your debts, you have the option of seeing a debt agreement administrator who can help you prepare a debt agreement between you and your creditors or lenders.
Once the debt agreement is fulfilled, you’ll be discharged from the agreement.
A Part 9 will remain on your credit file for up to seven years.
There are lenders who will consider your mortgage application if you have a completed Part IX Agreements on a credit file.
Tax debt home loan
These types of bad credit home loans are offered to borrowers who have a large debt with the Australian Taxation Office (ATO). Generally, the ATO debt is added to the mortgage, leaving the borrower clear from any ATO debt.
ATO debt is actually very common.
It can be easy to make a mistake on your tax return and this can come back to bite you years later.
Debt consolidation home loan
These types of bad credit home loans are offered to borrowers who have a number of small debts that have become unmanageable.
In Australia, most people choose to roll multiple forms of unsecured debt into their mortgage, creating one simple monthly repayment.
How to get approved for bad credit home loans
Major banks and lenders will likely decline your application but there are non-conforming or specialist lenders that are more flexible with their lending policies.
They will assess your home loan application on a case by case basis and listen to your story as to what went wrong and why getting a home loan will put you in a better financial position.
This is particularly true of borrowers looking to consolidate existing debt.
Specialist lenders can often rapidly approve bad credit home loans to meet deadlines from the creditors.
Why should I get a bad credit home loan?
The idea of bad credit home loans is to be a short to medium-term fix, not a long term solution such as a second mortgage.
Did you know that it’s often much cheaper to pay a higher interest rate for a few years than it is to sell your home and then buy a new one later on?
It usually costs more than 8% of the property value to sell your home!
We always set up bad credit home loans with the intent of refinancing back to a prime lender in around 2 to 3 years’ time when your credit history is clear again. Why?
The idea is to help you make a fresh start and it allows you to keep your home.
You can even have a 25 or 30-year loan term so you’re not forced to refinance within a particular timeframe.
This stops people being caught out if their personal situation changes.
In the meantime, it gives you breathing room to repay your bad debts and clean up your credit file.
Once you have a proven track record of repayments on your mortgage with no arrears you can refinance to a better interest rate.
Getting approved for bad credit home loans
You may qualify for a bad credit home loan if you have the following on your credit file:
- Small paid default: If you have a small default for less than $500 and it has been paid more than six months ago, we can help you borrow up to 90% or up to 95% LVR (of the property value) in strong cases.
- More than one small paid default: If you have less than $1,000 in paid defaults from financial institutions (e.g. banks), and less than $500 in paid defaults from non-financial institutions (e.g. phone companies), then you can borrow up to 85% or possibly 90% of the property value.
- Moderate paid defaults: If you have up to $3,000 in paid defaults, we’re able to help you borrow up to 80% of the property value with a prime lender, up to 90% of the property value with a specialist lender or up to 100% of the property value if you have a security guarantee from your parents.
- Large paid defaults: Larger paid defaults from $3,000 to $500,000 can be considered on a case by case basis if you have a very good explanation backed by strong evidence. We can lend up to 90% of the property value with a specialist lender.
- Unpaid defaults: If you have any unpaid defaults then you can only borrow up to 90% of the property value with a non-conforming lender. Many lenders require you to pay the defaults before the loan is approved.
- Judgments or court writs: If you have any judgments or court writs then you can borrow up to 90% of the property value with a non-conforming lender.
- Part IX agreement: Please refer to our Part IX agreement page for more information.
- Bankruptcy: Please refer to our bankruptcy mortgages page for more information.
If you have any questions, feel free to call us on 1300 889 743complete our free online assessment form or leave a question in the comments section below.
How does it work?
You may be wondering: why would anyone help me?
Firstly, specialist lenders recognise that Australians with bad credit are looking for a second chance at a happy life, whether it’s buying their own family home or consolidating debt to reduce their financial burden.
Borrowers who are approved for bad credit home loans rarely default on their mortgages again.
In fact, their default rates tend to be lower than “clean” borrowers!
Non-conforming lenders recognise this and so do we.
We also have a mission to give every Australian a fair go at owning their own home.
How do non-conforming lenders work?
Non-conforming lenders are far more flexible than the major banks.
The interest rates that are offered on bad credit home loans reflect the risk to the lender.
Therefore, the higher the risk of your loan, the higher the rate of interest the lender will charge you.
They assess applications for bad credit home loans on a case by case basis and will listen to your story as to what went wrong and why you need debt relief.
- Generally speaking, if you’re borrowing under 80% of the property value, then you can get a cheaper interest rate
- For those of you who are looking to borrow over 80%, or if you’ve had severely impaired credit history, then the rate can be higher.
Who are the non-conforming lenders?
We have access to many non-conforming lenders that can help borrowers get approval for a home loan despite black marks on their credit file.
We hold an Australian Credit Licence (ACL) as required under the National Consumer Credit Protection Act, allowing us to work with non-conforming lenders.
The non-conforming lenders that we deal with include:
- Bluestone Mortgages
- Liberty Financial
- Pepper Money
- AusWide Bank (Formerly Widebay Australia)
- Adelaide Bank
- La Trobe Financial
- RedZed Lending Solutions
- MKM Capital
What do I have to do?
If you have a black marks on your credit file, there are a few things you can do to qualify for a home loan, even with a major bank or lender.
Above all, speaking with a specialist mortgage broker is the key to building a strong case to show that the debt problems you’ve had in the past are just that: in the past.
A credit expert understands exactly what the banks want to see when assessing a borrowers’ ability to pay back bad credit home loans.
Avoid getting more negative listings
Are you currently experiencing financial hardship?
You can’t change the past but what you can do is prevent further bad credit listings.
This will put you in a better position with specialist lenders that offer bad credit home loans.
Ultimately, they want to see that you’re making, or you’ve made, a good effort to fix your past financial problems and you’re in a better position.
You can demonstrate this by:
- Making your repayments on time.
- Keeping in contact with lenders to avoid a “clearout” being listed.
- Paying something, not nothing, on your debts.
- Pay off your existing defaults.
Wait for listings to clear
If you’ve missed payments or you’ve defaulted in the past, you may want to wait for your credit to clear before applying.
Bear in mind, this may not always be in your best interests!
Buying a home sooner rather than waiting can potentially put you in a better position in the long run when you factor in property equity.
Other times, bad credit home loans may be the only option available to you depending on the damage to your credit file.
However, if for instance, you’ve had a default, court writ or enquiry listed on your profile for the past 5 years, and you’re less than 1 month away from it being cleared, our brokers may advise you to come back when the listing has cleared.
In this way, with all other aspects of your situation being strong, you can qualify with a major lender at a much sharper rate.
Confused? Speak to us!
We have a team of dedicated bad credit mortgage brokers with many years of experience.
Many of our senior brokers have worked in the credit departments of major banks so they know exactly how to build a strong case for bad credit home loans.
Call us on 1300 889 743 or complete our free online assessment form and find out how we can help you get approved for a bad credit mortgage.