Getting a Mortgage With a Default on Your Credit Report

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Late payments or defaults on a credit record are far from uncommon – but they may affect your prospects when you apply for a mortgage.

High street lenders are particularly inflexible and may automatically refuse applicants without a clear credit record – which is one of the most typical reasons for mortgage refusal

However, a default does not mean that you cannot secure a mortgage by understanding how lenders work, what their assessments involve, and the opportunities you have to strengthen your mortgage application.

Is It Possible to Find a Mortgage With a Default?

The quick answer is yes; there is no reason you cannot secure a mortgage with a default, although much depends on matching your circumstances with an appropriate lender.

Some lenders specialise in defined finance areas. If you have a recent default or one concerning a particularly high value, you may be best advised to apply to a niche lender that focuses on adverse credit scenarios.

In most cases, the solution is less about which mortgage you apply for and more about the preparations you have made to present yourself as a favourable mortgage applicant – credit history notwithstanding.

Borrowers usually have a much higher chance of approval with an experienced, independent mortgage broker since we can evaluate your circumstances and make unbiased recommendations about who to apply to and how to structure your application.

Credit defaults inevitably impact your eligibility and affordability assessments, but the more knowledge you have, the more compelling your application is likely to be.

How to Improve Your Mortgage Approval Prospects With a Credit File Default

Although a default might result in automatic rejection from a mainstream lender, a lot depends on the lending policies and rules and how they apply to your specific application.

A whole-of-market broker can assess the lending criteria across a vast network of lenders before making any suggestions, so you can apply with confidence that you know the policies and rules that apply.

At Think Plutus, our first step is to organise a friendly chat so we can get an idea about your deposit, preferred mortgage value and other circumstances.

Information gathering allows us to use our expertise to decide the best lender for you and understand the underlying reasons behind a default – whether it occurred weeks or years ago.

The Importance of Defaults on Your Credit File During a Mortgage Application

One of the first tasks is to download a copy of your credit file – from each of the three major UK bureaus (Equifax, Experian and TransUnion), or use a service like CheckMyFile.

Some applicants have a default from several years ago or that was recorded incorrectly and may be able to contest or remove an inaccurate report from their record.

Knowing what your credit report says before applying for a mortgage can be pivotal because a lender relies on that information to decide the risk associated with your loan and your creditworthiness.

For example, some lenders will consider mortgage applicants with defaults within the last three years.

Others will not, depending on other eligibility criteria, so it undoubtedly helps to know which lenders will approach your application favourably and which will refuse your loan outright.

Think Plutus is an independent, whole-of-market private broker and will happily assess your circumstances to ensure your selected lender is suited to your application and credit record.

How Do Different Types of Default Impact a Mortgage Application?

Just as some credit issues are more serious than others, defaults are not always equally influential in your mortgage application.

Defaults on minor bills such as a mobile phone account are less important than a default on a secured loan – the lender will consider the likelihood of you defaulting on their repayments.

Secured debt is more meaningful because it indicates a potential lack of financial management.

However, other lenders have a blanket ban on lending to any applicant with a default, so your choice of mortgage provider will make a difference.

Applying for a Mortgage With a Satisfied Default

Many borrowers assume that a ‘bad credit lender’ will accept their application for an initial assessment, but the opposite is true.

Adverse credit lenders will not reject every applicant who happens to have experienced bad credit in the past few years, but they will impose very strict rules on who they will lend to.

For example, a bad credit mortgage provider may be willing to consider every bad credit applicant, but with fixed restrictions on the amount they are prepared to offer.

Applicants with a clear credit history can typically borrow up to five times their annual income (or potentially more). Still, an applicant with defaults will normally be limited to four times their income.

The older, less severe and lower value your credit issues, the less a concern it is for a mortgage lender, so this will be an important factor in the application process.

Most lenders are more concerned with how long ago the default was registered than with whether you have since satisfied the debt, although settling an outstanding amount is certainly advantageous.

There may be merit in leaving an older default and putting the saved funds towards a deposit. As an experienced broker, we will steer you through the best next steps depending on your finances and mortgage application.

Applying for a Mortgage With a Default and Additional Credit Problems on Your File

To reiterate, a default may be adverse, but it is not as serious a credit issue as a repossession or bankruptcy and certainly does not preclude you from applying for, or securing, a mortgage for the property you wish to buy.

However, we always recommend downloading a copy of your credit report and being honest about any other mitigating circumstances that a lender will uncover during the underwriting process.

Defaults alone are not a major stumbling block, but a long history of credit problems is a different challenge.

If you have a range of major credit issues, such as CCJs or a debt management plan, alongside defaults, you may still be eligible for a mortgage – but in all likelihood, the fees and interest rates payable will be higher.

Your best chance of approval is to work with an independent broker who will evaluate your circumstances, the underlying reasons behind the bad debt, and advise on the optimal lenders and products for your desired borrowing level.

How a Default Affects Your Maximum Mortgage Borrowing

If you have a perfect credit record, you can borrow between three and five times your annual household income (normally somewhere between the two).

With a default on your credit file, that cap is likely lower because the lender will perceive any previous credit issues as a higher risk.

Lenders naturally try to offset the risk they assume when they approve a new loan, which means they may:

  • Offer a lower maximum mortgage.
  • Require a larger deposit.
  • Charge higher fees and interest.

Defaults that occurred several years ago but within six years will still show on your credit file but will not have as much of an effect on the mortgage terms offered.

Mortgage Affordability Assessments

Another important factor is affordability. Even if a lender is otherwise happy to make a mortgage offer, they will not proceed if they cannot see that you have the finances to maintain the repayments.

This area can be complex because lenders use very different calculation methods.

For example, some will factor in bonuses and regular overtime, whereas others will determine the maximum based solely on salaried income.

If you are self-employed, one lender might assess your earnings based on the last year’s trading accounts, and another could require three years of trading figures to estimate your average monthly income.

With a default or any other ongoing debt repayment, the affordability assessment will include those outgoings, which may reduce your mortgage offer.

Lenders must be responsible, so they need to check on your income and financial commitments. However, an independent broker can help match your requirements with a mortgage provider whose policies are consistent with your income structure.

Independent Support Applying for a Mortgage With a Default

As we have seen, there are numerous elements to consider when you apply for a mortgage with a default, and it may be tricky to determine which lenders or products are best suited.

Think Plutus can help as an experienced private broker with whole-of-market access to thousands of mortgage products and lenders, from mainstream banks to specialist bad credit mortgages.

If one lender has turned you down, that does not mean you will not be approved for a mortgage elsewhere; and we will ensure you have all the information you need to structure a strong application to the most appropriate lender.

Get in touch for more information about applying for a mortgage with a default or to discuss your requirements further.

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