Mortgages with a Default
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What is a Default Notice?
A default notice is a formal letter or notice that a creditor or lender must send you after you have missed three to six payments, or when you have repeatedly failed to pay the outstanding amount in full, therefore putting the account in arrears. It is a legal requirement for this letter to be sent, but it does not indicate that legal proceedings have started.
Creditors can only send default notices in regard to debts regulated by the Consumer Credit Act. The notice will set out all information very clearly, usually including:
- Which agreement terms you have broken
- The amount you owe to put the account in order
- The date by which you should make payment
- What consequences will follow if you fail to comply
- The period of time you have to respond (usually 14 days)
Mortgages with Default Information
After issuing a default notice, a creditor can:
- Demand the whole outstanding balance (not just the amount overdue) be paid in full
- Pass the debt to a private collection agency
- Begin legal action
- Start proceeding to repossess any assets that form part of the agreement (e.g.: a car, or house)
It is vital that you respond to a default notice as soon as you receive it. Putting the letter to one side or trying to forget about the issue will not solve it and will only make matters worse.
If you are able to do so, we recommend you pay the outstanding balance. If you have the resources to put the account in order and up to date within the time frame stipulated in the default notice, then you can ask to have the default removed from your credit report. (Tip: if you do this, then make sure you contact the three main credit reference agencies in the UK for a copy of your credit report to make sure this has been done – Experian, TransUnion and Equifax).
If you cannot clear the amount in arrears, you should contact the creditor to discuss how it might be possible for you to pay off the balances owed, and come to an agreement. If you have deliberately held payments due to a dispute, make sure their accounts department are aware of the situation and your reason for non-payment.
We cannot emphasise enough how important it is to talk to your creditor at this stage and try to reach an alternative agreement to settle the debt. It is far easier to do this now than after legal proceedings have started, and should avoid possibly having a CCJ placed against your name.
Are some defaults more severe than others?
The short answer is yes. All mortgage lenders will view any defaults on secured loans or home loan payments as very serious and will factor this into their assessment when deciding to offer you a mortgage.
However, defaults on lesser amounts or more domestic services like mobile phone or mail order accounts will be viewed in a more relaxed way. Defaults on credit card payments or personal loans fall into a middle ground, and the view on them will vary from lender to lender.
Like other black marks, a default notice will remain on your credit report for six years, after which it will be removed. During this time, it could affect your ability to obtain other sources of credit or a mortgage, but do remember that it is still possible to get a bad credit mortgage with default(s) on your file.
Mortgage with a Default
A lender may commonly decline a mortgage application because of one or more default notices on your credit report, but it’s worth noting that defaults do not have as much negative impact as some other adverse credit events, for example bankruptcy or Individual Voluntary Arrangements (IVAs).
However, if you do have a default on your file, then it is highly likely that the standard high street lenders will turn you down. But this does not mean all is not lost – as specialist advisers we have access to all the specialist lenders in the market, many of whom will offer deals and interest rates not available on the high street, and will consider applications for a bad credit mortgage with defaults. Also, with our strong knowledge of individual products, we may even be able to locate and get reasonable terms from a mainstream mortgage lender.
You should understand that a bad credit mortgage with a default will not be as competitive as a typical mortgage in terms of the interest rate and fees. But with an experienced bad credit mortgage broker to help you, the very best possible deal on a bad credit mortgage will be possible.
How soon after a default can I get a mortgage?
It might be possible within a year, depending on the nature of the default, but the more time that passes, the greater your chance of obtaining a mortgage on competitive terms. A default will stay on your credit record for six years, after which time you will be able to more easily apply for mortgages and other types of loans, and start rebuilding your credit rating.
What if my default is satisfied?
Some lenders do like to see defaults settled or ‘satisfied’ before you make an application for a mortgage, and doing so will almost always improve your chances of obtaining a mortgage with decent terms. However, it might not always be necessary, as other lenders are more concerned with the amount of time that has passed since the default rather than whether it was satisfied or not. An experienced broker will know which lenders are best to talk to according to your circumstances.
Getting a Mortgage once the Default has been removed
Your chances of securing a mortgage will improve greatly once the default notice has been removed from your record (either through time or settlement), provided you have no further adverse credit events, and meet the lender’s criteria.
But it is possible to still get a mortgage before the default comes off your file. An experienced and knowledgeable bad credit mortgage adviser such as we have on our team will be able to guide you through the best actions to take, and maybe be able to help you obtain a mortgage through a mainstream lender.
Whether you have a default notice or not, arguably the two main factors that providers will consider before making you a mortgage offer are the affordability of the loan, and the loan-to-value ratio, ahead of the considerations of defaults.
How much can I borrow with a Default?
Lenders will want to consider all your incomings and outgoings when deciding whether to offer you a mortgage, and how much they would be prepared to lend. As well as your salary, they will want to assess how much you need to budget for your household bills, groceries, car finance, and other things like childcare, commuting, etc. Typically, they will need to look at your bank statements to get the big picture on this and will request statements from the last three to six months, in order to get an idea of idea of regular payments.
Based on this assessment, they will then decide how much they are willing to offer, which may be more or less than you ideally would like to borrow. Someone applying with no black marks on their record, paying monthly outgoings without issue, could expect to borrow up to five times their annual income.
Applicants who may have endured financial issues, and defaulted on payments or had other adverse credit events in the past, will be considered a greater risk and will typically not be able to borrow as much, especially if they are carrying significant debt. The age of any bad credit details will also be a factor – the longer ago they occurred, the more favourable will be the amount you can borrow.
In general, people with clean credit records, a regular income, few other financial commitments and a history of easily keeping up with monthly payments will be able to borrow more. Those with a blemished credit history and heavy financial commitments will be able to borrow less.
What is the Loan-To-Value (LTV) ratio?
The percentage of the market value of the property you are planning to buy, or remortgage, is called the LTV ratio. For example, if your property is valued at £250,000, and the lender is willing to give you a mortgage of £150,000, then that is a 60% LTV ratio.
The LTV ratio will be higher for those with clean credit records and consistent payment histories, while lenders will need a larger deposit, or greater amount of equity in the case of a remortgage, from those with adverse credit events on their files.
How much deposit will I need if I have a default on my file?
In general, the average borrower can expect to put down a mortgage deposit of 10% of the value of the property in question, and sometimes 5% if they fulfil certain criteria (for example, when buying under the government’s Right To Buy scheme). This may also apply to you if your defaults are over three years old.
However, if your defaults were over one year ago, then you will likely be asked for a 15% deposit. This might drop to 10% if the defaults are over two years old. Criteria will vary from lender to lender, and the size of the default will also be a factor, so you should get advice from one of our specialist bad credit mortgage advisers as to what could be possible for your circumstances.
Getting a Mortgage with Defaults
It’s definitely still possible to get a mortgage with defaults on your credit record, but if you also have other black marks or bad credit issues, then this will make the process more difficult. However, we never rule it out, and we do know the right lenders to talk to in all sorts of circumstances.
Other bad credit events on your record will affect a lender’s decision to varying degrees, but bankruptcy and IVAs (Individual Voluntary Arrangements) will have the most negative impact. Mortgage arrears and CCJs affect things to a lesser extent, while late payments on unsecured debts has the least impact.
A tip: do not be tempted to take out payday loans. They are seen as a sign that you cannot manage your household finances effectively, and will be a greater lending risk.
Getting a mortgage with a satisfied result
You will be able to improve your credit rating by paying off the debt under the default notice, so that it shows at ‘satisfied’ on your credit record, but this entry will still show up on your record for six years from when the default was registered.
Remember – lenders are more interested in your recent financial activity than historical problems, so even if your record shows a default notice, if it is over two years old then you may still be able to get a standard mortgage. You might just need to know where to look.
Can I Remortgage with Defaults?
As the process for getting a remortgage is very similar to that for arranging your standard mortgage, the same kind of criteria will apply, which means that it is certainly possible for you to remortgage your property while you have defaults on your record. However, as is also the case with a standard mortgage, you will need to contact the most amenable lender with the right remortgage product to meet your requirements, who will understand your wider circumstances and not simply judge you on the default alone.
Much may depend on the exact nature of the default – the amount of money involved, the type of loan or line of credit it was in connection with, and sometimes which lending company. If the default was with a lending company in the same family or group of companies you apply to for a remortgage, then they are highly unlikely to grant it. This is why it may be advisable to work with one of the many specialist lenders who cater to borrowers who need a remortgage with a default.
The amount of time since the adverse credit event default occurred will also have a bearing on how a lender will view the default. If it happened within the last 12 months, then this will be viewed a little more seriously than a problem that occurred three or four years ago. Given a greater amount of time since a default, you will also have had opportunities to improve your credit history and show a regular habit of healthy borrowing and repayments. However, nothing is set in stone. Different lenders have different criteria, and there will still be some who are willing to look at your application for a remortgage with a relatively recent default.
Our advisers at The Mortgage Centres know the market inside out and have exceptional relationships with lenders across the entire spectrum of the UK mortgages industry. They will be able to tell you exactly which providers have products that could meet your needs, and start you in the right direction to getting a mortgage that works for you.
Mortgage lenders that accept Defaults
As you are probably aware, having a default on your credit record, especially one within the last twelve months, can cause a problem when approaching lenders for a mortgage or remortgage. It may be that you have already been declined by one or two mainstream lenders, which in itself can also leave an additional black mark on your credit history, and therefore unintentionally place you in an even worse position.
High street lenders are typically cautious and often decline applications where defaults are showing on your credit report out of hand. In general they have quite narrow criteria when it comes to the type of borrowers they want to work with, and usually only accept applications from people with the cleanest of financial records and most conventional patterns of income and use of credit. This said, some providers will have products built around your circumstances, as they have realised that those with adverse credit still make up a sizable enough minority to justify extending their business to.
However, these situations are rare, and when applying for a mortgage with defaults on your records, it’s highly likely that you will need to work with one of the great number of specialist lenders now on the UK market. Many of these lenders emerged to fill the gap created by the high street lenders, catering to people who have experienced problems in the past, and are far more flexible in their approach to borrowers. The criteria around dealing with defaults will vary from lender to lender, with some even accepting defaults within the last twelve months.
Specialist lenders do not advertise their services to the public and tend to only accept applications made through trusted intermediaries, such as ourselves at The Mortgage Centres. With our knowledge, familiarity and great relationships with both the high street and specialist lenders, we can give you the best chance of securing a mortgage with bad credit. Just call us for a chat today.
Bad Credit Mortgage Brokers
Unlimited specialist bad credit mortgage brokers have unlimited access to the market and interest rates from specialist lenders that you won’t find on the high street. You’ll be able to fully consider your options, get personalised mortgage advice from someone who completely understands your situation and even get assistance with your mortgage application.
Your best chance of finding a bad credit mortgage with defaults is to contact a specialist broker. At The Mortgage Centres, our team of specialists know the market inside out, and will be able to turn to exactly the right providers to get the best deals on bad credit mortgages with defaults.
Get in touch today to set up your free initial consultation with our experienced bad credit mortgage advisers and get a no-obligation quote.
Mortgages with Defaults FAQs
- Do I need to satisfy my defaults before I can have a mortgage?
- What is the maximum size default allowable?
- How do I pay off my default?
- What is a default?
- Why has the same default been registered on my account twice?
- Do you take the default balances into consideration when calculating how much I can borrow?
- Can I get a mortgage with a default?
- Are there any mortgage lenders that accept defaults?
- How bad is a default on your credit history?
- How long does a default remain on my credit file?
Defaults will stay on your credit record for six years, but the older they are, the less impact they will have on a decision. An unsatisfied default from four or five years ago will be less of an issue than a default within the past year, whether satisfied or not, but in general satisfying a default will improve your chances of getting a mortgage.
Remember that high street lenders have stringent criteria and may reject any application that reveals a default in the credit report, settled or not. But a specialist lender will be more flexible, paying more attention to your more recent credit history than historical bad credit events.
The key thing to remember here is that the defaults in the last year or two that matter most. If the default was within the last year, lenders will generally not want to see anything over £1500. If the default is over a year old, then they won’t worry about the amount. As to the number of defaults on your record, lenders will usually accept two within the last two years, but after that it isn’t critical.
If you remain in arrears for some time on your account without doing anything about it, the lender will likely close it and register a default, which will show on your credit history on top of the missing payments. You will likely receive a default notice, which will detail how much you owe and when you must pay it by.
If it is possible for you to pay it at this point, you should do so, directly to the creditor, and this should enable you to ask to have the default removed from your credit record. However, the late payment will still show. If you have problems paying, you should contact the creditor and ask if you can clear it in instalments.
Be aware that the creditor might not send you a default notice and simply register the default, so it’s always best to keep on top of arrears and your credit record.
When you fail to pay a number of instalments to a creditor and do nothing to remedy the situation, they will likely close the account and register a default. You are likely to be sent a default notice (a legal requirement if the debt falls under the Consumer Credit Act), which is a legal letter to advise you of the full situation and how to remedy it, but does not mean that legal action has actually started.
This can happen in cases where your debt has been sold on to a debt collection agency. The original creditor should have marked it as ‘satisfied’, and the debt collector should re-register the default, flagging it as ‘debt assigned’, to show what has happened to anyone checking your credit report. Interestingly, even if it is re-assigned, the debt only stays on your report for six years from the time it was originally registered, not re-registered, after which it drops off.
A key part of the mortgage application process is the affordability assessment, when the lender will look at your current liabilities compared to your income and gauge what you will be able to pay monthly for your mortgage. Their decision will also be influenced by the number of defaults and their age. If you have a number of defaults, as well as other current financial commitments, it’s likely they will offer you less and you will be asked to provide a larger deposit. As ever, lenders will consider how long ago various defaults happened, what has changed since then, and take a view on the risk they are taking now.
Yes, it is possible to get a mortgage with a default showing on your credit report, but a lot depends on other contributing factors – such as the amount of the default and when it was registered, as well as how big a deposit you can put down and your recent borrowing behaviour.
Yes, there are specialist lenders who cater to the needs of people with one or more defaults on their credit record. Their decisions will depend on numerous factors, including but not limited to the date of the default, how much debt is involved, the state of your current borrowing and your overall financial circumstances.
The impact a default on your credit history can have will depend on the kind of credit facility you are trying to get. But, in the case of a mortgage, a lender will also consider when the default occurred and how much for, as well as other aspects of your current situation, before making a decision. It may influence the outcome, but will not prevent you outright from getting a mortgage.
Bad credit events stay on your credit reports for six full years from when they were registered. After that, it falls outside the scope of the report. Just watch out for debts sold on to debt collection agencies where they may re-register the default as a new debt, not one re-assigned, so the same debt may remain for longer.