If you’ve missed a payment on a loan or ignored a debt, you might be one of the thousands of Brits with a default on your credit report.
Defaults on a credit file are one of the most common reasons for the refusal of a mortgage by many lenders, especially on the high street where generally only applicants with a clean credit history are approved.
The advisors we work with are some of the best specialists in the UK and successfully arrange mortgages for people with defaults every day, so even if you’ve been rejected for a mortgage because of a default in the past, it may still be possible for you to find a lender elsewhere.
Can I get a mortgage with a default?
The important thing to remember is that every lender is different – some specialise in low rates and lend to customers with clean credit, some specialise in self-employed lending, some specialise in adverse credit.
Thankfully, there are several mortgage lenders who are happy to approve applicants with all sorts of defaulted credit accounts on their file. Working with a mortgage broker can help you locate these lenders quicker, without the hassle of having to compare hundreds of rates yourself.
That’s because they’ll know the lenders that offer more favourable rates and terms for borrowers with your circumstances and can advise you on the areas where you could save money throughout the mortgage process.
Be open and honest
Your mortgage adviser can only recommend lenders based upon what they know about you, so it’s best to be upfront and open about your finances and circumstances from the get go.
Conversations you have with your mortgage advisor are completely confidential and inaccurate information will only compromise and slow down your application process. Delays can cost you time and could result in you missing out on a better rate or losing your dream property.
Once they know your circumstances a mortgage broker can find the most suitable lender, thus improving your chances of a successful application.
Are some defaults more severe than others?
Yes, they are. All lenders will consider a secured loan or mortgage payment defaults to be very serious and weigh them accordingly when making a decision. However, some lenders are more relaxed about, for example, missed payments on mail order accounts or mobile phone contracts. Defaults on credit cards and loan repayments fall in the middle ground.
How long does a default stay on my credit file?
A default will stay on your credit file for six years which could affect your ability to access credit in the future. However, despite what many people might think, it is still possible to find a competitive adverse credit mortgage with a default (or defaults) on your file.
How soon after a default can I get a mortgage?
The longer a default has been on your record, the less impact it is likely to have on your ability to obtain a competitively priced mortgage. It will stay on your credit record for six years from the date of the default, after which you can start to repair your credit rating.
Can I get a mortgage with a satisfied default?
Most people assume that repaying bad debts is important when it comes to being approved for new borrowing but, strangely, this is not always the case in the mortgage world.
Yes, it will almost certainly improve your ‘credit score’ if you have satisfied your defaults before you apply for a mortgage but it is not always essential with the more flexible lenders because often they don’t actually run a credit scoring system anyway.
Mortgages with settled defaults are slightly easier to obtain and with the adverse lenders who credit score, some will grade your application into a certain ‘tier’ of risk. Which tier you fall into will dictate which rate you are eligible for with some lenders.
Generally, the lenders that accept defaults are really only concerned with when they were registered, not the dates of settlement, so mortgages with unsatisfied defaults are just as likely to be approved so long as the dates of registration are within their criteria..
How much can I borrow if I have defaults?
Generally, adverse credit mortgage lenders are tighter on their affordability calculation than some of the high street lenders. If you have a clean credit history you can borrow up to 5x income, sometimes more in certain exceptional circumstances.
If you have defaults your maximum borrowing may be limited as the lenders who take on higher risk for those with adverse credit like to minimise the risk elsewhere, hence they may require a higher deposit in the majority of cases.
If the adverse credit issue is over 3 years old, it may be possible to borrow up to 4.5, maybe 5x income, but usually maximum loans sizes are around 4x income. Generally, the more severe the adverse credit, the higher the risk is perceived to be and so lenders accepting a higher risk will limit loan to income to a greater degree.
How can my income affect getting a mortgage with a default?
‘Income’ is also a changing concept. All lenders accept 100% of basic salary but some will only accept 50% of overtime, bonuses and other additional income.
Some will demand 3 years of self-employment where others are happy to lend to those with 1 year’s trading. Some demand those in employment to have been in the same role for 12 months, some with the same employer for 12 months etc.
Maximum loans are also limited by other outgoings and financial commitments. Those with personal loan repayments of hundreds of pounds per month are less able to afford the new repayment than those on the same income with no other commitments which makes sense of course.
To learn more about how your income could affect your mortgage application, ask an advisor here.
Should I check my credit history before applying for a mortgage?
Yes! Even if you know you have defaults, you should still check your credit rating to ensure there isn’t anything else on your file which might adversely affect your chances of being approved for a loan.
Although there is no fixed credit rating that lenders will require before offering a loan, keeping your credit as healthy as possible will only increase your chances of approval.
A key point to be aware of is that different lenders refer to different credit rating agencies (CRAs) when looking for credit reports. It can be a good idea to check your report with a variety of CRAs as your score can vary greatly between them and a lender may not cross-reference the information.
You will also need to know exactly how many defaults you have and when these occurred. Lenders will often have strict rules as to the level of defaults they will allow before declining a mortgage application.
Where can I find my credit report?
You can usually obtain your credit reports once a year from each agency free of charge, so there’s no excuse not to gather this information before applying for a mortgage or any other type of loan, particularly if you’re aware of potential reasons for rejection.
Experian
Equifax
Clearscore
It’s also worth checking through your reports for any other issues which might arise. Issues such as late payments or arrears on a loan will also negatively affect your score, as will more significant matters including CCJs, IVAs or declarations of bankruptcy and it’s important that you have full details if any of these are relevant.
Can I find a commercial mortgage lender if I have a default?
Many commercial lenders won’t consider an application for someone who has defaulted on a loan within the last two years, so before hastily applying for a loan that might get rejected and cause your report further damage, check with a broker.
They can go through your report and highlight the areas that lenders will focus on as well as give you guidance on how you can improve your chances of approval for a commercial mortgage with a default.
How can we help?
At The Mortgage Hut, we have a team of specialist brokers who understand the market inside out and know exactly where to turn to find the best deals on adverse credit mortgages with defaults.
With unlimited access to the market and exclusive rates that are not available on the high street, we can help you fully consider your options. We can also help you with your mortgage application and provide personalised mortgage advice.
Get in touch today for free initial advice and no-obligation quotes from our team of experienced bad credit brokers.
023 8023 5555