How do late payments impact mortgage applications

If you have late payments on your credit record, there are still certain steps you can take to get yourself back on track.

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How do late payments impact a mortgage application?

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.

Do all lenders reject applications with late payments?

Not all but many will frown upon an application with late payments, even if by a few days because by doing so, you demonstrate that you’re not able to keep your financial obligations. For a bank or mortgage lender, this is too risky as they want to be reassured that you’ll make your mortgage repayments on time and in full.

The good news? Getting a mortgage or remortgage isn’t impossible with late payments on your record. You just need to know where the lenders are that’ll overlook them. 

Your other circumstances can help with the decision too, depending on the lender. For some, it will be a straight-up no but there are more that are lenient when it comes to late or missed payments, especially if you can explain why you missed the payment and if the other factors which affect your affordability for the mortgage are in good order.

What other factors affect my affordability?

  • The amount of income you earn
  • The stability of that income
  • How much debt you have in relation to how much you earn
  • The number of dependents you have
  • Your credit report, including details about whether you’ve repaid debts, registered to vote and if you’ve been rejected for credit
  • Your age (how close you are to retirement)
  • Whether you rely on your overdraft or credit cards too much

How will a mortgage lender know if I’ve made payments late?

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.

Understanding your credit report

Checking your own report doesn’t affect your credit score or the notes on your report but when a lender runs a hard check (usually because you’ve applied to them for credit) it can. When they look at your report they’ll be able to see whether other lenders have rejected you, how many you’ve applied to and within what time frame.

Avoid applying to lender after lender. If you get rejected, try and give yourself some time between when you last applied because multiple applications make you look like you’re desperate for credit and banks and lenders don’t tend to look favourably on that.

This information, as well as details about your debt, can remain visible on your credit reports for up to 6 years.

What should I do next if I’ve missed a payment on one of my accounts?

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.

What’s the difference between late payments and arrears?

Some lenders won’t report a late payment to credit reference agencies (CRAs) but being in arrears is different. An odd missed payment might be overlooked, especially if the balance is paid within a month, however, doing this over and over can result in you accumulating a bill that won’t be ignored by CRAs and future lenders.

If you owe more than a month's payment and continue to ignore it, expect it to appear on your credit report and expect lenders present and in the future to bring it up when you apply, or, reject your application on the basis that you’re not financially stable.

That won’t always be the case as different lenders offering different agreements each have their own criteria that they’ll refer to when making a decision about who to lend to. For example, one may reject you because of a recent missed payment whereas another may decide not to based on other factors like the size of your income or the stability of your job.

Is missing a payment on a secured loan like a mortgage worse?

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.

Can I get a mortgage if my credit report has things on it that are worse than late payments?

Most lenders won’t accept serious bad credit issues like that. However, depending on your other circumstances and your chosen lender’s criteria, you may be able to get approval for a mortgage despite having, for example, a CCJ, IVA or even bankruptcy. 

The date of when the bad credit issue occurred, the circumstances surrounding it and whether you’ve kept up to date with any repayments for that debt, can all affect your ability to get a mortgage. While recent interest changes have led to many lenders pulling some of their mortgage products from the market, there are still a handful of lenders left that might consider an applicant with such circumstances.

Will a bigger deposit help me get approved if I have late payments?

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.

What if I reduce the amount I borrow?

Saving a 5% deposit can be hard enough, let alone a 25% deposit. That’s why some borrowers make the decision to reduce the amount they borrow and opt for a property with a lower market value. That could mean that you don’t get to buy a house and instead, you go for a flat, an ex-council property through Right to Buy or make use of other schemes like Shared Ownership.

For example, if you reduce the amount of money you want to borrow, the risk of greater loss is reduced for the lender. Most mortgage lenders allow eligible applicants to borrow between 4-and 5.5 x their annual income but expect to borrow on the lower end of that scale if your credit history is less than perfect.

That won’t be the case for everyone because every lender has its own criteria and rules for who they can accept and how many larger loans they can approve. Mortgages with a lower interest rate, for example, are often reserved for a select group of borrowers with impeccable affordability while the majority of other borrowers will only be eligible for mortgages based on lower-income multiples.

Will increasing the length of the agreement help?

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.

Steps you can take to get yourself back on track

  • Keep on top of your credit reports so you’re aware of updates, as well as what lenders can see when they’re accessing your report

  • Make payments for any debts on time and in full

  • Make payments for current financial contracts like phone bills, car finance agreements and credit cards on time and in full

  • Avoid dipping into your overdraft as this can make you look cash poor and too reliant on credit

Whether your payments are late, missed or defaults, we can help

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.

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