Getting A Mortgage After Defaults

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What is a default notice? 

A default notice is a marker that creditors place on credit accounts after a series of around three to six missed payments, although this will vary slightly between lenders.

You have fourteen days after receipt of a default to rectify the situation. Where you fail to resolve the default, the creditor ordinarily closes the credit account and the remaining balance becomes immediately due. 

What is a satisfied default?

A satisfied default is where the debt has been resolved. It will remain on your credit report as long as an unsatisfied default, however, lenders will look more favourably on satisfied defaults, as they show improved financial responsibility.

Can I get a mortgage with a default?

Specialist lenders will sometimes consider mortgage applications from those with defaults and lower credit scores. They will also look at the reason for your low credit score and the severity of your debt issues.

Does the type of default make a difference with mortgage applications?

The type of default on your file certainly makes a difference to whether or not the lender will consider overlooking it. Unsecured debts are more likely to be accepted than secured debts. There is a general scale of default severity, which can help you decide how likely a lender would be to consider your personal circumstances. For example, having continued missed repayments on your mortgage is unlikely to be appealing to a mortgage lender.

From least to most serious defaults:

Unsecured debts

  • Mobile phone bills
  • Home Utilities such as gas, electricity, water and internet
  • Bank account overdrafts and charges
  • Credit card debt 
  • Unsecured loans

Secured debts

  • Secured loans (such as car finance)
  • Mortgage arrears

Beyond defaults, there are IVAs and Bankruptcy, which will have an even higher impact on your credit score and it is unlikely that you will be able to secure a mortgage under these circumstances. There may be very niche lenders willing to take on this level of risk on a case by case basis, however, you would need to use a specialist broker to find them.

If you do have a default, it can be possible to secure a mortgage, as some lenders offer bad credit mortgages. Unfortunately these mortgages will have much higher interest rates than typical mortgages. You will also have less choice of lender, as main street lenders are unlikely to be an option.

Can I get a mortgage with outstanding debt?

If your defaults are on the less severe end of the scale, those lenders willing to consider more serious debts, such as IVAs and Bankruptcy are more likely to consider defaults where you still have outstanding debts. 

If possible, however, your chance of being accepted for a mortgage will always be higher where defaults have been cleared. 

How soon after a default can I get a mortgage?

Lenders will look at both the date of the default alongside its severity. More recently registered defaults are unlikely to be overlooked, however, if the lender can see that you’ve made an effort to satisfy any default, you will be in a better position.

Defaults remain on your credit file for six years, causing damage to your credit score. Whilst marks from late and missed payments also last for six years, however, their impact is far less detrimental to your score.

How much can I borrow If I have a default?

The amount of your mortgage loan can be reduced if you have defaults. Whilst this will vary slightly from lender to lender, they will generally use more caution in calculating your loan amount. Whereas those with strong credit scores are sometimes able to borrow five or more times their income, those with poor credit are more likely to be offered just three times their annual income.

To see how significantly this could affect your loan amount, this example is based on an applicant with an average income of around £30,000 per year.

Income £30,000 + good credit (x5) = mortgage of £150,000

Income £30,000 + poor credit (x3) = mortgage of £90,000

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.

How can a Mortgage Broker help if I have defaults?

Depending on the severity of your default(s), it may be beneficial to wait until you have a stronger credit rating to apply for a mortgage, however, Mortgage Brokers can help you to make this decision with greater certainty. 

Those lenders who are more willing to consider applicants with defaults are likely to be independent firms, rather than high street banks. Mortgage Brokers who specialise in helping those with a poor credit history, will have access to deals from this type of lender. As well as finding the most competitive deals available to applicants in your situation, they can advise you on which lenders are more likely to accept your application.

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Why Spot On Mortgages to this?

Other types of mortgages are available such as Variable, Cashback, Capped, Collared & LIBOR.