Mortgage With Defaults
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Your home may be repossessed if you do not keep up repayments on your mortgage
Mortgage With Defaults
Lee Sutton explains how the mortgage process works if you have a default.
Can I get a mortgage with a default on my credit file?
Yes, but any financial blips or anomalies you’ve had will impact the deal you’ll be offered. Lenders are more wary of borrowers who’ve struggled to repay a debt in the past, and will therefore view your application as potentially more risky than if you had a clean credit file.
This usually means that you’ll face higher rates for the mortgage, and you might not be able to borrow as much as with clean credit. Additionally, you might have to come up with a slightly higher deposit.
Does a default make getting a mortgage more difficult?
Not really, but it will reduce the pool of lenders you can apply to. As your mortgage broker, it’s my job to help find the right mortgage for the situation, so we’ll seek out the right deal for you.
We would focus on lenders that will accept borrowers with defaults on their credit files, and make the application on your behalf.
How long does a default stay on your credit file?
A default stays on the credit file for six years, but it doesn’t stop you getting a mortgage during that time. We would focus on searching for lenders who will accept borrowers with defaults.
How soon can I get a mortgage after a default?
It varies lender to lender, but in general, six months after the default has been added to your credit file, you should be able to choose from a small pool of mortgage lenders who are more lenient in adverse credit criteria.
It really depends on the severity of the default. If it’s a big credit blip that involves a debt secured against property, you might have to wait a while longer. If you’re worried or unsure, give us a call and we can run through your specific situation.
Can I get a mortgage with a satisfied default?
Yes – once you reach six months past the default being satisfied, provided there’s no additional credit problems, you should have a much wider range of borrowing choices.
With all these cases, getting a mortgage is specific to how bad the debt has been and how long ago it happened. That goes together with what income you have, your savings and any equity in the property itself.
Are some defaults worse than others when applying for a mortgage?
Mortgage defaults, or a default on any loan secured against your property, are considered more risky by lenders. Arrears and defaults on these will have a bigger impact on your choice of lenders than something smaller like a mobile phone contract.
In some cases, lenders actually ignore mobile phone defaults – as these can be registered quite aggressively by a mobile phone provider. Where there have been missed payments, the lender needs to understand what the situation was, to make a meaningful decision.
Lenders might be more lenient about something on your credit file that you weren’t aware of. Something I see fairly often is that people may have had a parking ticket but didn’t know about it. We can explain something like that.
How much deposit do I need if I’ve got a default on my credit file?
Poor credit lending isn’t an exact science. There are variables on both sides. Lenders have different appetites for the risk they’re prepared to take on clients with less than perfect credit scores.
A default can be of different levels of severity and size. Typically, you would need to put down a 15% deposit, but I’ve come across some lenders that would be okay with a 10% deposit. Again, the best thing would be to get in touch and we can look at the options available.
How much can I borrow if I have defaults?
The amount you can borrow is impacted more by your income than your credit history. Having said that, needing a larger deposit would mean you’re potentially borrowing less compared to the value of your home.
With a 15% or a 10% deposit, there won’t be much difference in the amount that you can borrow with good credit versus slightly impaired credit.
A mortgage size is usually between four and five times your income, but it is specific to each case. So again, it’s best to have a chat about the situation. Spend 10 to 15 minutes on a phone conversation and we can work out how much you can borrow.
Do only certain mortgage lenders accept defaults?
Yes. It’s our job to find the right mortgage for the client’s situation. Sometimes these lenders aren’t available directly to customers. It may well be a name that people aren’t familiar with because they’re not on the high street.
These lenders often only work through a mortgage intermediary. So it’s well worth having a conversation with us, and then we can spend time looking for the right mortgage deal for you.
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What types of mortgages are available for people with defaults?
The mortgages available for people with defaults are exactly the same as for anyone else. You can choose from fixed rates, tracker mortgages, etc. There’s no difference there.
If you want to know what you’re going to be paying each month, obviously a fixed rate would be the appropriate option. If you wanted to take a gamble that interest rates are going to come down, a tracker would be a good choice.
Most adverse credit lenders would offer a variety of different deals such as two, three or five year fixed rates.
How can I improve my chances of getting a mortgage with a default?
The best thing for anybody wanting to get a mortgage is to really manage your credit. If you’ve had poor credit in the past, make sure you stick to any payment plans you have and make sure that nothing gets worse.
Check everything is paid on time – and particularly utility bills, because they are viewed quite seriously by lenders. Make sure there’s enough money in your account to cover everything. Avoid bounced, late or returned direct debits, because lenders see these on your bank statements. Don’t take out any further credit as that could lead to future problems.
Check your credit file on a regular basis – there’s a number of credit agencies you can use.
We would recommend Check My File, an independent online service that covers the three major credit agencies. That’s helpful because each agency records information in slightly different ways.
If anyone’s got any questions about that, it’s really worth having a chat. We can explain the things that lenders don’t look favourably at. For example, they might see you’ve got gambling debts or payday loans or you’re spending a lot on online betting.
If you can show us your credit file and a bank statement, we can have a look and have a really good, meaningful conversation about your options.
You’ve demonstrated how a mortgage broker can help – is there anything else to add?
As advisors, it’s our job to help each client get the right mortgage. We’ll listen to the circumstances and we’ll never be judgmental in any way. Everybody has had financial problems or been through a bad patch at some time in their lives.
We’ll use our experience and our large network of lender contacts to quickly review the details you give us, and then we’ll find the most suitable mortgages.
It really saves you a lot of time trawling through the options yourself – and also could save a lot of heartache. If you get a couple of knockbacks it can be difficult, and you might think you’ll never get a mortgage – but that’s often not the case.
We can also access exclusive deals that aren’t available on the high street. Some lenders, especially in adverse credit situations, aren’t necessarily going to be companies that you’ve heard of.
We know that communication is very important, especially when buying your first house or looking to remortgage. You might be concerned that interest rates are higher than they used to be. We’ll navigate all of that and explain the technical terms.
A lot of the paperwork from lenders is in ‘mortgage speak’ – we translate all that for you. After the initial exploration and advice, we then manage that mortgage right the way through the application to completion. If anything comes out of the woodwork, we help you deal with it.
We’re really in your corner to get to completion. We want to keep it as stress-free and comfortable as we can for every client.
There may be a fee for mortgage advice. The precise amount of the fee will depend on your circumstances and will be discussed and agreed with you at the earliest opportunity. Typically, in most cases, our fee will be £495. We charge £595 for bridging and adverse credit cases; and £995 for Later Life Lending.
Mortgage Style Ltd is registered in England and Wales. Registered Number 5743648.
Registered Office: Elm Tree Farm Estate, The Sheepway, Portbury, Bristol, BS20 7TF.
Mortgage Style Ltd, trading as Mortgage Style, is an appointed representative of the H L Partnership Limited, which is authorised and regulated by the Financial Conduct Authority.
YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP TO DATE WITH YOUR MORTGAGE REPAYMENTS.