Get a Mortgage With a Default on Your Credit File
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Mortgage With Defaults
Mike Buckley explains how the mortgage process works with a default.
Can I get a mortgage with a default on my credit file?
Absolutely. There’s a number of lenders who specialise in this area of the market, and are quite happy to lend to people with defaults on their credit file.
Does a default make getting a mortgage more difficult?
It does, because the way lenders will look at lending money to someone is based on their credit history. If somebody has a default, it’s normally because they haven’t paid back a credit commitment. That does make it somewhat more challenging.
It can prevent you from securing the best rate that’s available on the market – as most high street lenders are quite risk averse with their appetite to lending. People with defaults may not be able to secure deals with mainstream lenders.
However, there’s a number of specialist lenders and smaller building societies who are quite happy to look at people who have had a default in the past. They are often willing to lend in those circumstances.
How long does a default stay on your credit file?
Defaults stay on the credit file for six years. Everything is reported by the credit reference agencies for six years.
There’s a common misconception that if you have a default and you satisfy it, i.e. you pay it off, it is removed. That isn’t the case. Even defaults that have been satisfied and paid off will remain on the credit report and will be visible to anybody doing credit searches.
Any lender doing any credit searches will see that for a total of six years. After that six year period, they will drop off and no longer be visible.
How soon can I get a mortgage after a default? Can I get a mortgage with a satisfied default?
In terms of how soon, there isn’t a standard answer – it depends on the lender. So every lender has different criteria around what they will accept in terms of defaults. Some completely ignore certain defaults or values.
For example, you may have had a default last week and it will not prevent you from getting a mortgage – depending on the type or value of default. Most of the specialist lenders have set criteria as to what they will accept in terms of a default. It may be that they will accept defaults that are more than six, 12 or 24 months old, for example.
Generally the longer it’s been since the default was registered, the better the rates for you. The way the lender’s risk appetite works is that once a default happened long ago, they’re quite happy. They will offer you a mortgage at a slightly better interest rate.
There are also lenders who will ignore satisfied defaults. But it doesn’t always matter whether the default has been satisfied or not – it isn’t always the deciding factor as to whether you can get a mortgage and what rate is available to you.
The best first step is to get a copy of your credit report and speak to an experienced broker who understands that section of the market. We’ll be able to advise you on the best course of action and what options are available to you.
It may be that options are available straight away, but if you were to wait a few weeks, a slightly better option would be available. The broker would be able to talk through that with you and give you suitable advice.
Are some defaults worse than others when applying for a mortgage?
In some circumstances, yes. There are lenders who will disregard certain types of defaults. Some lenders have specific default criteria – they might ignore defaults that are under £250 or defaults from communications commitments, i.e. phone bills and mobile phone contracts.
Other lenders ignore defaults from utility companies, depending on the size. So yes, there are circumstances where the type of the default makes a difference and potentially provides better options for you.
Defaults on particular fixed term credit commitments, like loans, can be more serious. A mortgage is a type of a loan, so if you’re missing payments and defaulting on loans, it doesn’t always paint the best picture to mortgage providers. But as I said earlier, it isn’t prohibitive. Certain lenders will ignore it, regardless of the type of default, after it has been registered for a set amount of time.
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How much deposit do I need if I’ve got a default on my credit file?
The deposit required will vary depending on how long ago the default was registered. The longer ago the default was registered, the better the Loan to Value options that will be available to you. For example, some lenders will lend up to 95% with defaults on credit reports.
Generally speaking though, you’ll be looking at potentially a 10% deposit. The more recent the default, potentially the more deposit you would need to put down, because of the risk appetite from the lender.
With all mortgages, the more deposit you are putting down, the lower the Loan to Value against the property becomes. Lenders’ products and interest rates are based on certain Loan to Value limits. It may therefore be beneficial to increase the deposit slightly to achieve a better interest rate.
Again, once an experienced broker has a copy of your credit report, we can look at the deposit you’ve got to work with and discuss the options – especially whether that means you’re able to get a mortgage with that deposit. If you’re able to put down a little bit more, the broker will confirm if there will be a slightly better option for you.
How much can I borrow if I have defaults?
The amount you can borrow doesn’t depend on whether you have defaults or not. It’s dependent on that particular lender’s affordability calculations.
Affordability works on a couple of factors. The main one is income, and that is affected by what your existing credit commitments are. So the amount that you can borrow has nothing to do with whether you have defaults or not – it’s to do with your income and affordability.
Every lender’s affordability is different, so it could be that the amount you can borrow is restricted if only one or two mortgage lenders are available, based on your credit history. Borrowing can vary a lot across lenders – but if you only have two lenders available you’re limited to what they will lend to you.
Affordability is quite complex. Your broker would work that out in the initial assessment. We would advise you what your borrowing potential is and what interest rates are available to you, based on your credit file.
Are there only certain mortgage lenders that accept defaults?
Most mortgage lenders will potentially accept a default. Even most high street and mainstream lenders will accept defaults in certain circumstances.
But a lot of mainstream lenders also credit score. It can depend on a number of factors, including the type of the default, how long ago it was registered, whether it was satisfied, and the size.
You might have a default registered nearly six years ago for a £60 phone bill. Your credit score hasn’t been severely affected by that and in the five years following, you’ve managed to build a strong credit score. That particular application may go to a mainstream high stream lender and we could secure an impressive interest rate for you.
In circumstances where you have six or more defaults registered in the last two or three years, it’s probably not going to go to a mainstream lender. There aren’t just lenders that accept defaults, there are also specialist lenders that specifically work with people who have had financial issues in the past.
That can include not just defaults, but missed payments and county court judgements (CCJs). They may potentially accept bankruptcies, IVAs or debt management plans.
It doesn’t matter how bad your credit report is, there may be an option for you. Speak to a specialist broker like ourselves and we’ll advise if it is possible and if so, find the best deal available for you.
What types of mortgages are available for people with defaults?
The types of mortgage that are available are generally the same, whether you have defaults or not. The defaults may just dictate which lenders you can get a mortgage with. It doesn’t necessarily affect the type of mortgage available to you. It’s more likely to affect the lender who is willing to consider the mortgage application.
How can I improve my chances of getting a mortgage with a default?
Lenders and underwriters tend to look at credit conduct since that default happened. If the default has been satisfied, that’s always a positive. It shows you’re willing to repay the debt. It’s a positive, but not always a necessity.
Showing good credit conduct since that default always helps. They look at your spending, your borrowing and how you pay back your debts. It includes bank statement conduct, making sure that you’re not going into an overdraft and you’re living within your means.
Defaults can be caused by life events, and it always helps if there’s an explanation or backstory. It’s much better to explain to the underwriter who’s making the decision on whether to lend you money that the default was caused by a certain life event, as opposed to you just not paying the debt back.
If you’re planning towards getting a mortgage, whether that be in 12 months or two years time, and you’ve just had a default, the main thing to consider is what happens from this point onward.
You can’t change what’s already happened but you can affect things moving forward. It’s all about credit conduct – making sure that you don’t miss any payments on any credit cards or loans. Late or missed payments are reflected on your credit report. If conduct is bad following a default, it doesn’t paint the best picture – and can make it more difficult when you’re applying for a mortgage in the future.
What else do we need to know about getting a mortgage with a default?
Realistically, it’s a broker’s job to find the best deal for each applicant. As we’ve discussed, it’s not always straightforward getting a mortgage with any adverse credit, but it’s not impossible.
In most circumstances, you wouldn’t be able to walk into your own bank or building society and get a mortgage with them. Using a broker is the quick way to ensure that you’re getting the best deal based on your credit history.
We’re whole-of-market, so we have access to everyone. As soon as we’ve seen the credit report, we’ll know which lenders can provide the best deal for you. We’ll be able to place you with a lender quickly and efficiently, ensuring you get the best service and come away with a mortgage that is correct for you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
