Mortgages and defaults

It's possible to be approved for a mortgage with a default on your credit record. In fact, it may be easier than you expect.

Updated

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
A default appears on your credit record when you fail to repay debt within a specified amount of time.

You’ll receive a warning and a final opportunity to repay the debt before a default is registered.

As such, it can alarm mortgage lenders when an applicant has a default on their credit file, as it makes the individual look financially reckless.

However, it is still possible to be approved for a mortgage if you have a default on your credit file.

In this scenario, a lender’s decision will be based on a number of factors surrounding the default, including when and how it was issued.

Types of default and how they affect your mortgage application

Some lenders will flat-out refuse your mortgage application if you have any type of recent default on your account.

However, your credit report will show what type of account was defaulted on, and some lenders will consider this before making a decision on your eligibility. Mobile phone or credit card defaults, for example, aren’t always viewed as being as severe as a mortgage or secured loan default.

It is possible to leave a 200-word note on your default, explaining why it occurred. Some lenders will consider this when assessing your eligibility.

How soon after a default can I get a mortgage?

A default remains on your credit report for six years, but lenders place less weight on older transactions.

If a default is too recent, you may be refused for a mortgage regardless of an otherwise fantastic credit history. If this is the case, a lender will state it on its minimum eligibility criteria. A document outlining this criteria is usually available on the lender’s website.

Some will refuse applicants who have had any form of default in the past two years. Yet, other lenders are less fazed by defaults and some actually specialise in finding suitable deals for applicants who have them.

These specialists tend to offer higher rates than traditional lenders though.

How much can I borrow if I have defaults?

As a general rule, the more money you’re looking to borrow, the better the credit score you will need.

However, the maximum amount of money you can borrow will depend on each individual lender’s criteria.

The difference between satisfied and unsatisfied defaults

A default will remain on your credit record for six years.

However, when the debt is settled, it will switch from an unsatisfied default to a satisfied default. This looks more promising to lenders, especially if you were able to pay off what you owed quickly.

How do I know which lenders will accept me?

Even if you appear to meet a lender’s minimum criteria, there’s no guaranteed way of knowing whether you’ll be approved for a mortgage with a default.

For your best shot at finding a great deal from a lender that will approve you, enlist the help of a professional mortgage adviser. A mortgage adviser uses expert knowledge of the mortgage market to point you towards the most suitable product.

It’s especially recommended for applicants with credit problems to work with mortgage advisers, as failed mortgage applications will harm their credit score even further.

Can I remortgage when I have a default?

When you remortgage, your financial circumstances are freshly considered.

If you’ve suffered a default since being approved for your original mortgage, this could harm your chances of finding a good remortgage deal.

If you’d suffered a default before being approved for your original mortgage, you should find it easier to find a great remortgage deal, all other things considered. This is because your default would now be older, and therefore have less bearing on the lender’s assessment of your finances.

How to prepare before submitting a mortgage application

Here are some tips to help ensure you’re in the best shape to be approved before submitting your mortgage application.

  • Pay your debts on time. The most recent blips on your credit record are taken the most seriously by lenders.
  • Stop applying for financial products. Every time you apply for a financial product, the lender will credit check you. This produces a temporary dip in your credit score, so it’s best to avoid applying for any in the months leading up to your mortgage application.
  • Reduce your outgoings. Mortgage lenders will check your bank statements to see whether you can afford your monthly mortgage repayments based on your current outgoings. It will therefore be beneficial to reduce them in any way possible. It could prove particularly handy to pay off any debts you’re paying interest on.
  • Reduce the amount of credit you have access to. If you have too much access to additional credit, this may harm your application as the lender could see it as a risky opportunity for you to get into more debt. For this reason, it’s worth closing any credit cards or overdrafts you’re not using.
  • Consider your “financial links”. If you make a joint application for a financial product with someone, you remain “financially linked” with them until the product is closed. This means their credit score will affect your mortgage application. Try to close financial links with anyone who has a bad credit score.
  • Check your credit report is accurate. It is possible that there are errors on your credit score that could harm your mortgage application. You can check your credit score and amend any errors for free by contacting any of the UK’s three major credit reference agencies: Experian, Equifax or TransUnion (Callcredit).

Speak to a specialist lender

If you are struggling to get a mortgage via the traditional methods you could speak to a specialist lender. They can provide the expertise on a particular area of lending where you’re looking for assistance.

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