Will my credit history work against me?

In making a mortgage application, whether you will be able to borrow the amount of money you want to, and at what rate of interest, are among the most common questions people have. However, it is also worth considering how your past credit history - specifically any late payments you may have recorded against you - could impact your mortgage application from the outset.

It’s not uncommon for people to have missed the occasional payment for something or other at some point. Whether it was a genuine oversight in forgetting to pay a bill on time, or you’ve avoided a payment during a time when cash flow has been an issue, missed or late payments can leave an unwelcome mark on your credit file.

Sadly, however common late payments may be, they aren’t something that many lenders are comfortable with and this can often lead to the mortgage applications of otherwise creditworthy applicants being declined. After you’ve had a mortgage declined due to late payment, it can be hard to appeal the decision and boost your overall credit score again. In fact, more often than not, your best approach to a declined application is simply to move one until you find a lender who will give your application the thorough consideration it deserves.

Happily, there are lenders out there who will still give competitive mortgages to people with late payment histories. There are some who will even be happy to offer you a mortgage with late payments on your record at a fairly competitive rate which requires a minimal deposit.

Here, we take a look at how late payments have an impact on mortgage applications. We’ll guide you through the various factors that different lenders may take into consideration regarding your credit history. Your own personal circumstances will have the greatest effect as to whether or not any particular lender is more or less likely to approve your application for a mortgage with late payments on your record. Our experienced brokers are always on hand to offer you advice.

Understanding your own credit report

Before applying for a mortgage - or indeed credit of any kind - it’s worth checking your own credit score and determining whether there is anything on there which you feel isn’t correct. You can check your own credit report as many times as you want to without it affecting your credit score. Checks only affect your score when lenders conduct their own searches in response to applications for credit. So take the time to know yours is accurate in order to avoid needless repeat applications.

The difference between late payments and arrears

There is a difference between having a history of late payments to being in arrears. Late payments generally refer to the occasional odd late payment against an account. And usually, provided that the payment is made within the same month that it is due (albeit after the actual due date) most lenders will not report it as a missed payment to credit agencies.

Being considered in arrears, however, is different. This refers to payments which have remained unsettled for more than one month. So, if you owe more than any current month’s repayment, you will be considered to be in arrears on that account.

The type of account on which you missed the payment

Probably one of the most significant factors which is considered when applying for a mortgage with late payments on your record is the type of account on which you missed the payment. Missing a payment for secured credit, such as a previous mortgage or other secured loan, is likely to be much more of an issue than missed payments against unsecured credit.

The odd late or missed payment against something unsecured, such as an overdraft, phone bill or credit card, 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. A lender willing to grant late payment mortgages may well demand a much higher deposit in return.

How many late payments you missed and when you missed them

How many payments you missed and when you missed them will also have a significant impact as to how your mortgage application is viewed. Clearly, the more missed payments that are recorded on your file, the lower your credit-rating score will be. This can lead to the majority of high street lenders declining your application, or at best only offering you a deal in return for you being able to lay down a much larger initial deposit.

Conversely, one late payment several years ago is unlikely to cause irreparable damage. However, do remember that any action which lowers your credit score can cause some of the big-name lenders to decline your application, or offer you a deal at a higher rate than you would otherwise receive should you have a clean credit history.

More than one lender

Of course, fortunately, there is more than one lender in the market for mortgages. So even if you don’t have a high enough credit score to secure a suitable mortgage deal with one lender, it is worth trying others to see what they can offer. Shop around a bit, or seek the advice of our expert mortgage brokers to see what options may be available for you.

 Given that buying a property is rarely a speedy process, it is worth remembering that when you last had any late or missed payments can significantly impact the outcome of your mortgage application. It may be stating the obvious, but if you are late on payments, or worse, in arrears, at the time of applying, your chances of securing a mortgage are much lower than if your missed payments happened some time ago.

So, if you are looking for a mortgage

So, if you are 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. This may help your situation when applying to some high street lenders. The saying, ‘time to get your house in order’ could not be any truer than when you come to want to apply for a mortgage on one.

If you find yourself in a situation where you have had late payments in the 12 months prior to making your mortgage application, provided that you have never been more than three months behind and get yourself back up to date, there are a few specialist lenders still willing to offer fairly decent rates so all is not lost. Speak to one of our experienced mortgage brokers for advice as to what may be the best route for you.

Other credit issues can impact your application too

If you have credit issues that stretch beyond late payments, such as defaults, bankruptcy, County Court Judgements (CCJs), IVAs or debt management plans (DMPs), you may finder it harder still to get an application for a mortgage approved. Such issues will be taken far more seriously than late payments and may become the overriding factor for any lender considering your application.

Thankfully, specialist lenders exist who will offer mortgages to people who have experienced such credit problems in the past. Depending on when the issues occurred, the type of problem, how many times it has happened and the amount of money concerned, it may still be possible to get a mortgage. Make sure you reveal any such history to your mortgage broker so that they can do the hard work of searching possible suitable lenders on your behalf with this in mind.

How much deposit do you have?

In an age where it’s possible to agree a high loan to value (LTV) mortgage, in applying for a mortgage with the knowledge of late payments on your record, the bigger the deposit you have, the better your chances of receiving a good deal will be. Put simply, if you have a history of multiple late payments and a poor credit score, you are far more likely to be approved for a 50% mortgage if you can match this with a deposit than if you were asking for a 95% loan with next to no deposit to put down yourself.

 That does not mean, however, that you will not be able to secure approval for a higher mortgage of up to 95%. There are lenders in the market who may approve you even if you have a poor credit score. However, there is a much smaller number of lenders willing to offer such terms and they would require you to meet other stringent criteria before offering you a mortgage deal.

 If you are unsure as to how your own credit history may impact the likelihood of you being able to secure a mortgage, please speak to one of our specialist mortgage brokers. Different lenders will all have different benchmarks concerning the level of missed payments against secured (mortgages / secured loans etc.) and unsecured (credit cards / phone bills / current account overdrafts / loans etc.) credit that are acceptable to them.

Some specialist lenders will be more flexible than others when it comes to offering you a mortgage deal. Even if you think that you may be unable to get a mortgage, but dream of doing so, please speak to one of our experienced mortgage brokers. They can conduct a thorough, expert review of your credit file to help you establish whether or not it may be possible to find a specialist lender out there who can offer you a suitable mortgage deal.

 Even if your initial application appears to be outside of the general lender's policy, our brokers can sometimes still get mortgages approved. They do this by helping to build a good business case - where it is possible to do so - for mortgage underwriters to review. Get in touch with us for further advice and to find out how we may be able to help you.

Getting a mortgage after mortgage arrears

We have talked a lot about the issue of late or missed payments and how these can be viewed by mortgage lenders. However, it is worth noting that getting a mortgage after you have already been in a situation of mortgage arrears can be very difficult indeed.  This is due to the fact that many lenders view being late or missing a mortgage repayment as one of the most severe credit issues.

So why is this the case? Generally speaking, if somebody finds themselves in a position where they can’t keep up with their credit repayments, they usually start to tackle the issue by delaying payments on those accounts which have the least impact on their daily lives. For example, it would be common for people to first begin missing payments for items such as their mobile phone, then their utility bills, overdraft, credit card and then loans etc.

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.

As we have mentioned previously, one or two late payments are unlikely to prevent you from ever getting another mortgage. Similarly, if you have a strong explanation for the odd missed payment (for example, redundancy or bereavement), then there will still be lenders willing to consider your application. Much will boil down to the timing of the arrears, whether or not you are up-to-date now and whether the issues which caused the initial missed payment or period of arrears are now resolved.

As you can see, there are many ways in which late payments can affect your mortgage application, but thankfully most are not insurmountable. For further advice, please contact one of our specialist mortgage brokers today.

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