Mortgage Advice: Can You Get a Mortgage with a Default on Your File?
Getting a mortgage with a default on your credit record can be tough, but it’s far from impossible. But when you miss a payment or can’t pay back a loan – known as a default – you’ll struggle to get a good deal on a mortgage, and some lenders will even turn you down.
However, some clever tactics and strategies can help you secure a mortgage even if you’ve got a financial blip in your history. In this blog, we’ll explore how defaults impact mortgage applications and share tips on boosting your chances of approval.
Understanding How Defaults Affect Mortgage Applications
How Do Defaults Affect Your Credit Score?
A default can stay on your credit file for six whole years – that’s whether you pay it off or not. During that time, it’ll knock points off your credit score. The lower your credit score, the tougher it will be to get a mortgage.
Lenders view defaults as a warning sign – they think you’re a higher risk, and they might either offer you a worse deal or turn you down altogether.
Lender Perception
Each lender is different and will have their own set of rules for deciding whether to lend you money. But generally speaking, older defaults carry less weight with lenders, and a £150 default is usually seen as less serious than a £5,000 default.
High Street Lenders
Some of the bigger high street banks might say no to you because of a default, but some building societies and specialist lenders review applications in more detail and judge risk on a case-by-case basis, looking at what happened and what you’ve done to get back on track.
They don’t just look at the fact that you had a default – they also look at how many defaults appear, whether they are smaller defaults or multiple defaults, and when the default occurred.
They may also consider whether it was on a mobile phone contract, a mail-order account, or a larger loan. For example, missing a payment on a £20 mobile phone bill is likely to be a lot less serious than defaulting on a £10,000 loan. Some lenders may accept older defaults or satisfied defaults, but most high street lenders are stricter. Defaults on secured loans are also usually treated more seriously than unsecured borrowing.
Strategies to Get a Mortgage with a Default
Wait for the Default to Age a Bit
The impact of a default on your credit score will get better over time – especially if you’re doing a good job of paying your bills on time. But if you’ve got any recent defaults (i.e. less than a year old), it’s going to be a lot harder to get a mortgage.
If you’re waiting for the default to age – especially if it’s older than three years – you may find that you have more options available to you. If the default is nearing the six-year limit, it might be best to wait until it is removed from your credit report. This will not only simplify securing a mortgage but could also help you obtain a more favourable deal.
Sort Out Your Credit Report
If you can improve your overall credit health, this will help to cancel out the impact of the default. We mean paying all your bills on time, reducing your debt-to-income ratio and not taking on too much new debt. You should also avoid applying for loads of new credit in the run-up to applying for a mortgage.
Having a good credit history will make you look a lot more attractive to lenders. Check your credit report to make sure it’s accurate, and review each credit reference agency record for mistakes before making a mortgage application.
Paying a debt does not remove the default entry; it may show as satisfied, partially settled, or with the full balance no longer outstanding. If a debt has been sold and re-registered incorrectly, it should be disputed before you apply for a mortgage.
Save Up a Bigger Deposit
Saving for a bigger deposit will not only make it easier to secure a mortgage – it will also make lenders a lot happier. In most cases, you’ll need to save 5-10% of the value of the property, although some borrowers with defaults may need to go higher.
Having a bigger deposit is key because it means the lender is taking on less risk. If you do fall behind with payments, they will have a bigger chunk of the property to fall back on. It’s not just about getting a mortgage, though – you’ll also need to budget for other costs, like fees and stamp duty.
Consider a Specialist Lender
If you’ve got a default on your record, specialist lenders may be a good option for you. Some will accept defaults that mainstream lenders reject, including, in some cases, unsatisfied defaults, and they will look at each case individually rather than just rejecting you because of a default.
These lenders will take into account the whole of your financial situation – not just the default. The default matters too, because lenders assess the type, amount, and age of it when reviewing your case.
However, they may charge a higher interest rate if you have recent or multiple defaults, and that can leave you with fewer options. But with specialist lenders, you may still be able to find a deal that works for you – even if you’ve got adverse credit.
Get a Mortgage Broker On Board
If you’re having trouble getting a mortgage with a default, a mortgage broker or mortgage advisor can be a lifesaver. They have a wealth of knowledge about the market and can access a whole range of lenders that most high street banks can’t.
A good broker can guide you through the mortgage process and search for the right deal for your circumstances.
Brokers can also help you to present your application in the best possible light – which is especially useful if you have credit issues and need guidance on which lenders are more flexible, so you can show you’re not a risk.
Prepping for Your Application
When you’re getting ready to apply for a mortgage with a default, honesty is the best policy. Be upfront about your financial history, including any missed payments, defaults and other credit issues on your mortgage application.
Include an explanation for the default, noting when the default notice was issued and whether it arose under a credit agreement, and show lenders what you’ve done to get your finances back on track.
Put together a solid application with payslips, bank statements, a budget and proof of income – and any other relevant documents, as lenders may also want more detail on the debt, whether it is satisfied, and whether your existing lender would allow a remortgage if relevant.
Getting an agreement in principle can actually give lenders a better idea of how much you might be able to borrow. A lot of lenders look at the affordability of a loan by basing it on roughly 4.5 times your annual income.
Deposit size, credit score and the property itself can all affect approval, and certain properties can make a case harder.
Conclusion
A default on a loan is a pretty big deal when it comes to getting a mortgage, but it’s not a deal-breaker. By getting a clearer picture of how lenders view defaults and working on fixing any financial issues, looking into specialist lenders and possibly getting some help from a mortgage broker, you can actually increase your chances of getting a mortgage.
A high street mortgage may be harder to secure after defaults, so staying with your existing lender or using a specialist option can sometimes be a more realistic route.
It’s all about planning out your approach, being patient & finding that one lender that’ll be willing to take a chance on you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
As with all insurance policies, conditions and exclusions will apply.
Not all Buy to Let Mortgages are regulated by The Financial Conduct Authority.