The most common reason for getting a mortgage declined is because a potential borrower has defaults on their credit file.
However, there are still several lenders who will approve your application, even if you have a number of defaults on your credit file.
How do I go about this?
Find out exactly what’s on your credit file. This an extremely important part of the process as your adviser will only be able to determine which lenders will accept your application by basing it on your exact situation.
Once you have your credit report and know the criteria that you need to meet, you can firstly check them yourself for any discrepancies that you can get amended, i.e. default payments that have now been cleared
What is the general criteria I need to meet to get a mortgage with defaults on my report?
Fortunately, you can now borrow up to 95% loan-to-value using the Help to Buy scheme, even if you have defaults on your history – though those with more severe defaults will need greater deposits.
What if I have a satisfied default?
Whilst it will certainly improve your credit score, having a satisfied default on your record before you apply for a mortgage isn’t as essential as you may think, as most of the specialist lenders won’t look at your score.
However, there’s no denying that getting a mortgage with settled defaults will be easier to obtain, and for those lenders that do check your credit score, you will be in better stead, as you will show less risk and get a cheaper rate as a result.
Does the type of default make a difference with mortgage applications?
Different types of defaults mean different things to lenders. For example, a default on a mobile phone contract isn’t looked upon in the same light as a default on a more serious loan such as a previous mortgage.
Getting a mortgage if you have other credit issues as well defaults can make things even harder, and will impact the lenders that'll consider you, the rate, fees, and the loan to value.
How much can I borrow if I have defaults?
Specialist lenders are usually tighter on their affordability than the high street. If you have a clean credit history, you could borrow up to 5x your income.
But if you have defaults on your record that are over three years old, then you could borrow up to 4.5, but it’s likely to be 4x your income.
A good rule of thumb is that the more severe the default, the higher the risk you pose and the lower the limit of your income and borrowing will be.
If you are looking to get a mortgage but are worried because you have defaults in your name, speak to one of our expert advisers and they will be able to talk you through the next steps.