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Mortgage With Defaults

Lewis Shaw discusses how the mortgage process works if you have a default.

Can I get a mortgage with a default on my credit file?

Yes, you can get a mortgage with a default on your credit file, but it depends on a few factors: The age of the default, whether it’s satisfied (paid off), the size and type of default, how much deposit you have, and the rest of your credit history.

A default will stay on your credit profile for up to six years from when it’s registered. If it’s quite recent, that tends to be a bigger issue, and most high-street lenders will likely say no. If it’s over three years old, that’s less of an issue.

Whether it’s satisfied or it’s still outstanding can make a difference. The size and type of default matter too – for example, it’s quite common for a mobile phone contract to go into default. Perhaps it’s only for a few pounds, which is not usually an issue. But if the default was £10,000 on a credit card, that’s potentially a problem.

It can be pretty tricky, too, to get a mortgage with a default if you’ve only got a 5% deposit. The bigger the deposit, the better.

Does a default make getting a mortgage more difficult?

Yes, getting a mortgage with a default can be more difficult, but it depends on the details. A default is a red flag to lenders that you’ve previously failed to keep up with a debt. The more recent the red flag is, the hotter that risk looks, and fewer lenders would want to approve that mortgage.

You tend to have fewer options – most high street lenders will probably say no, and we have to use more specialist lenders. That essentially means potentially a higher deposit amount and a higher interest rate. But just because you’ve got a default, it doesn’t mean you can’t get a mortgage.

How long does a default stay on your credit file?

Typically, a default will stay on your credit file for six years from when it’s registered – not when it’s been satisfied. When they’re doing a credit search and credit score on you, lenders will typically look back over the duration of your credit profile.

Once a default is satisfied, it becomes less of an issue, but it will still be visible. If you had a default today, it would be seen by lenders and could still create a problem for the next six years.

How soon can I get a mortgage after a default?

You can get a mortgage as soon as six months after a default. But generally, the longer ago the default was, the easier it is to get approved – and potentially the better terms you would get.

If it’s within six months, we have fewer lenders to approach. Once it’s over 12 months, we’ve got a few more. After 24 months, there are far more lenders, and after 36 months, the pool is much broader, particularly if that default has been satisfied.

There’s no hard and fast rule here. It depends on how much the default was for, when it was registered and if it’s been satisfied. Into the mix, we also need to plug in your employment status, your income status and your deposit.

Can I get a mortgage with a satisfied default?

Yes, you can get a mortgage with a satisfied default, but again, it depends on the amount and type of default. If it was £20 on a mobile phone bill, that’s not going to cause many issues, while £5,000 on a loan, credit card or mortgage could be a bigger challenge.

Once you satisfy it, you’re improving your chances. It’s still an issue, but the lender can see you’ve done the right thing by paying it off. It’s always positive to satisfy a default. It doesn’t necessarily mean you’ll get a better mortgage, but it’s going to go in your favour.

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Are some defaults worse than others when applying for a mortgage?

Yes, some defaults are worse than others when applying for a mortgage. The kryptonite for mortgage lenders is a default on a payday loan. That’s an absolute no-no – lenders don’t like payday loans. That’s a red flag for lenders, and it’s going to make it extremely difficult.

Lenders are pretty used to seeing defaults on mobile phone contracts, as when you move phone providers, there’s often a bill when you leave their service. People think they can ignore that, but it can sometimes be the deciding factor between getting a high street mortgage or not.

Certainly, unsatisfied defaults above £500 are treated differently from those under £500. There’s a big spectrum of defaults from £20 on a mobile phone bill all the way up to £10,000 on a credit card. Where you are on that spectrum will determine how much deposit you’ll need and the interest rate you will pay.

How much deposit do I need if I’ve got a default on my credit file?

It does vary. The deposit needed will be determined by how much the default was for, if it’s been repaid, and when it was registered.

If it’s a £20 default from three years ago and it’s been paid off, broadly speaking, you’ll be fine. That’s acceptable in the realm of high street lenders. If it’s a £2,000 default from 12 months ago and it’s not been satisfied, you’re going to need a much higher deposit.

There are still mortgages available with a 5% deposit with a default, but they are fewer and further between. If you’ve got 10% or ideally 15%, it will be much easier. You should always speak to a mortgage advisor to understand exactly what your scenario is, because it’s such a broad spectrum.

How much can I borrow if I have defaults?

Having a default isn’t a factor here. Every mortgage lender has their own affordability calculator that takes into account your income, your outgoings and your circumstances – are you single, are you a couple, do you have children or not?

They’ll take all those factors into consideration and give you an amount you can borrow. The actual Loan to Income calculation doesn’t vary just because you have a default. It’s more about the deposit you have and the rest of your credit profile. The amount that you can borrow if you have a default is in line with any other mortgage. We just need a lender that’s comfortable with that risk scenario.

Do only certain mortgage lenders accept defaults?

There are certain mortgage lenders set up specifically for people with previous credit issues, and one of those credit issues will be defaults. Some specific lenders will accept defaults – they’ve built an entire business around it.

However, almost every lender will have a policy regarding the defaults they will and won’t accept, taking into account registration dates, whether they are satisfied, and the size of the default.

Certainly, if it’s over £500 and within the last 24 months, it’s unlikely that it would be approved on the high street – although not impossible. We would normally be looking for a mortgage lender specifically set up to accept those types of scenarios.

What types of mortgages are available for people with defaults?

Broadly speaking, the types of mortgages available to people with defaults are what you would expect. You can choose between fixed rate and variable rate mortgages, interest only or repayment mortgages, and whether to fix for two, three, five or 10 years.

It’s simply about picking the correct lender based upon your particular credit profile, your default, when that was registered, whether it’s satisfied and the amount. All of those things combined will influence which lender is available for you if you have defaults.

How can I improve my chances of getting a mortgage with a default?

To improve your chances of getting a mortgage with a default, there are a few things that you can do. Number one, satisfy the default – even if it’s from five years ago or was only £20, just pay it off.

Make sure that everything else on your credit profile is up to date. And of course, a larger deposit will help. The bigger the deposit, the better the chances are for a mortgage after a default, but satisfying it is the biggest factor in that scenario.

What else do we need to know about getting a mortgage with a default?

Many people think that previous credit issues and defaults mean they aren’t able to get a mortgage – but that’s not the case.

As long as you’ve taken steps to improve your circumstances, to repay those defaults and manage your credit better, there are probably more options than people realise. The best thing to do is always to get in touch with a mortgage advisor who understands this market.

We understand these scenarios and will guide you on your options. We’ll put a plan together to hopefully get you a mortgage and buy the property you like.

 

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME

YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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