How do late payments impact mortgage applications

When the end of the month is in sight but your money won’t quite stretch to cover all of your outgoings, you might find yourself putting off payments for things like Netflix, your phone bill or maybe even your car finance. But what effect does paying your bills late have when it comes to applying for a mortgage?

It might not even be something you’re thinking about just yet but remember - credit blips can remain on your credit report for up to six years. Your future self might just thank you for keeping up with your repayments.

They’ll look at your credit history which will show any missed or late payments to creditors or utility companies such as EDF or Southern Water. There are lots of different credit report agencies (known as CRAs) but generally speaking, lends tend to refer to Equifax, Experian and Clearscore. Frustratingly, each one can hold different information about you because some are updated more frequently than others.

That’s why it’s a good idea to check each one before you apply for a mortgage or any type of credit. If you see something that doesn’t look quite right or needs updating, you can contact the original creditor (it will tell you who that is on your report i.e. Three Mobile) and ask for it to be removed.

You might not always be successful and it can be tedious but it’s worth giving it a go, especially as a better credit report and score can help you access mortgage products with lower interest rates. Usually, the lower the interest rate, the cheaper your mortgage, though other factors like fees and how much you’re borrowing can affect the full cost.

Pay it straight away but if that’s not possible, call the company that you owe to and either set up a payment plan or give them a date that you can make a full payment. Ideally, you want to repay the money owed within a month of the missed payment.

If you can rectify the missed payment immediately, it might not be reported on your credit file

Payments can sometimes take up to three working days to be processed, so don’t worry if the payment isn’t marked as resolved right away but check your account for updates.

Yes, banks and lenders tend to view missed payments for secured loans, like a mortgage, as worse than a missed payment for a credit card, Klarna account or phone bill.

The odd late or missed payment against something unsecured, such as an overdraft, is unlikely to have a huge impact on some lenders' decision to loan you money. However, if you already have a record of a mortgage with late payments, you can expect to have a much harder time finding a lender.

Missing payments on significant credit accounts such as a mortgage is usually the last action an individual would take because everyone wants to keep the roof over their head. As such, falling into mortgage arrears signifies a serious issue with a borrower’s ability to repay and is likely to damage their creditworthiness in relation to any subsequent credit application.

A lender willing to grant late payment mortgages may well demand a much higher deposit in return. An applicant with a clean credit history i.e. no late payments might be able to get a mortgage with a deposit between 5-10% of the property price, depending on their other circumstances. So for example, if you wanted to buy a house with a market value of £200,000 and you had a clean credit history and impeccable affordability, you might be able to secure that mortgage and home with £10,000 (5%) or £20,000 (10%).

In contrast, someone with affordability issues may struggle to find a lender willing to approve a mortgage with a small deposit because it opens them up for a greater loss if that person doesn’t repay the loan. A 15-25% deposit might be required under those circumstances. For that same £200,000 house, you might need £30,000 (15%) or as much as £50,000 (25%).

So ideally, if you’re looking for a mortgage and have a fairly small deposit of around 5-10%, aim to have a clean record of no missed payments for anything up to two years previously. If you’re not quite there yet, start making improvements to your credit report by keeping on top of your payments, making sure you’ve signed up to the electoral system and applying for free credit boosting services like Experian Boost.

The term length of the contract can also affect whether someone with late payments will get approved. Extending the length of the time that you repay your mortgage can reduce the amount you pay per month and some lenders might see this as more manageable for a person with financial issues.

The problem with increasing your mortgage term is that you pay more interest overall, making the mortgage more expensive versus had you taken a shorter term, with higher capital repayments. Speak to your mortgage broker about the cost of your mortgage with either option. They’ll be able to calculate your repayments and explain the pros and cons of each option before you make a decision.

Our ethos is “clear, simple, honest advice”. When you choose to speak to us, either on the phone, online or in our offices, we’ll treat you like a member of the family, giving you practical advice without judgement. 

It’s not uncommon to have missed payments and it’s not us that decide whether your mortgage is approved. Our job is to find you a list of lenders, explain the cost and terms and conditions of each and recommend the one that is best for you based on your circumstances and what it is you need. 

We have great relationships with the big lenders like Santander, HSBC and Natwest but we’re also in constant communication with the lesser known lenders that could be more likely to approve a mortgage for an applicant with a missed payment or other forms of bad credit. 

Getting advice and knowing your options is just the first step but we’re on hand throughout the whole process.