Mortgage after repossession
Published 16th August 2017
“Can i get another mortgage after repossession” is a question we get asked a LOT, especially since there’s a high number of people that have recovered and saved enough deposit to buy again since the credit crunch in 2008/9. Thankfully the answer is a resounding YES, if you A) know where to look, and B) meet the right lender criteria in terms of deposit and credit conduct since.
Click here for the dangers of repossessed applicants trying to find a mortgage alone.
Don’t worry! It is possible to obtain a mortgage if you have had a property repossessed in the past, as there are a few specialist lenders considering these applications and many of them at surprisingly attractive and competitive rates. These lenders are looking a several key factors in their decision:
- Date of repossession
- What interest rate you’ll be offered
- Size of repossession
- Reason for repossession
- Mortgage lender who repossessed
- If you make any legacy payments
- Other credit issues
- Credit conduct since
- New loan to value
- New loan Affordability
- Remortgage having had a repossession
Date of repossession
To get a mortgage after repossession in the Uk, ‘when you were repossessed’ is probably the first question the expert will ask you as it’s the most important factor – the more recent, the more difficult. As the table below explains, if you were repossessed at any point in the last 3 years it makes it very tricky to find a mortgage without a sizeable deposit; over 3 years ago and you have a chance of being approved up to 85% loan to value (LTV); over 6 years ago and you can get up to 95% LTV.
|Date of repossession||Deposit required||Likelihood of acceptance|
|Less than 1 year ago||n/a||Zero|
|1-2 years ago||30-35%||Difficult|
|2-3 years ago||30-35%||Difficult|
|3-4 years ago||15%||Possible|
|4-5 years ago||10%||Possible|
|5-6 years ago||10%||Possible|
|Over 6 years ago||5%||Possible|
“What mortgage rate will I get if I’ve been repossessed?”
The date of repossession also has the biggest impact on the rate you’re likely to get. The more recent, the higher the rate. If your repossession was within the last 3 years then the rate is likely to be far higher (currently over 6%), even if you have a large deposit – this is because the type of specialist lender you’ll have access to predominantly take on more borrowers deemed more risky. If the repossession was over 3 years ago then your rate can be far more competitive (currently around 5% depending on your deposit). If it was over 4 years ago then it’s even likely you can get market leading rates (currently anywhere from 2% depending on deposit size).
Other credit issues on your file will play a part here – if you have more recent issues then the rate is higher and the chance of you being accepted by the lenders at 2% is minimal. If the repossession was a standalone issue the you have more chance of getting a better rate and needing less deposit.
Size of repossession
The size of the repossession is less important than the date in terms of being approved for a new mortgage, however lenders will still want to know. If the repo was for millions or multiple mortgages were defaulted, or multiple properties repossessed, then this poses much more of a risk to the new lender than if the repo was in the small thousands and on one property. This doesn’t mean if you have had multiple repossessions there’s no hope of course - the lenders accepting repossessions will consider each scenario carefully and the decision is on a case-by-case basis.
Reason for the repossession
The reason you were repossessed is important, however if you are applying to the wrong lender then it holds little weight on appeal when they decline you, even if it was due to you being defrauded or for something completely out of your control. Typically, if you have been repossessed and it’s out of the lenders’ policy, then the reason is irrelevant.
If you are applying with the right lender then a legitimate reason can help with the underwriting process as it gives a solid background into what happened, and if supported by evidence, can add flexibility to the decision if your application is not necessarily straightforward. This is why it’s important to use an expert who can package and present your application in the right way – you’d be surprised how many customers come to us having been declined, for one of the experts to get it through with the very same lender!!!
Mortgage lender who repossessed
The actual lender that you defaulted with and who repossessed your property can have a major influence over who is likely to approve you now. Many lenders are part of banking groups that are either related or owned by the same company (for example, Lloyds, Halifax, and Birmingham Midshires are all part of Lloyds group). Often if you were declined by one lender in a group, it is common for that lender AND the others in the group to never approve you for a mortgage again, even if they are one of those who accept repossessed applicants.
This is again why it’s important for an expert to take care of things for you as it takes specialist market knowledge to understand the right lenders to approach.
Do you have any legacy payments?
By ‘legacy payments’ we mean - do you have any mortgage shortfall after repossession. If you still owe money to the lender who repossessed you, then the number of other lenders who are likely to accept you is far less, and it’s likely you may need more deposit to be approved with anyone. Also bear in mind that those still willing to consider it are likely to factor in the monthly payment to affordability if it is to be an ongoing commitment, which can reduce the total loan size they’ll let you borrow.
Other credit issues
Do you have any other credit issues on your credit files? It’s common for anyone who has been repossessed to have other issues as generally if you are struggling financially then the mortgage is the last thing you stop paying. This may be other late payments, arrears, defaults, CCJs, IVAs, bankruptcy, debt management plans etc… Each of these will impact which lender you can go to now.
If these issues have occurred since the repossession then it can indicate you haven’t recovered from the situation and raise further questions as to whether you are creditworthy now or not.
One further point we must stress is the importance of avoiding payday loans - contrary to common belief, these may increase credit score with some agencies but don't improve your chances of mortgage approval, and most lenders decline if you've used them recently. Read more about this in our payday loan article here.
Credit conduct since the repossession
The lenders are looking for applicants who can evidence recovery. They want to lend to customers that perhaps had a rough time in the past but who have recovered and are now unlikely to default on the mortgage again. If other credit issues on your file occurred at the time of the repossession or before, and you have conducted yourself immaculately since then, you are far more likely to be approved than if you have had a repossession and have had more trouble since, especially if these issues are recent.
New loan to value
To mortgage with a previous repossession, the date of repossession table above shows the deposit levels you’ll likely need depending on the date you were repossessed. It’s pretty simple though: the more recent the repossession the more deposit you’ll need.
New loan Affordability
In getting another mortgage after repossession you will be subject to standard mortgage eligibility criteria as with any other mortgage application, and you’ll certainly need to evidence affordability. Anyone who has been repossessed in the past is likely to be under more scrutiny here for the lender to be happy you aren’t likely to get into similar trouble. Typically if your repossession was within the last 3 years then you’re going to be able to borrow a maximum of around 3x your annual income. If it was over 3 years ago then you’ll get to approx. 4x your income. If it was over 6 years ago then you may be able to borrow up to 5x your income.
Remortgage with a previous repossession
You can remortgage if you’ve been repossessed in the past and own a property now, the number of lenders available will be as limited as they are for purchases, but the process can be far simpler and quicker if you have enough equity in your property.
The dangers of applying on your own
The truth is, getting another mortgage after a repossession can be tricky as most banks don’t entertain the idea at all. If you look at the high street the chances of being approved are next to zero, which is where many borrowers seem to start, and inevitably have trouble. The issue with applying to high street lenders that would never accept the application in the first place, is that an unnecessary credit search registered on your file can lower your credit score and harm the chances of being approved with a lender who would have otherwise considered the application. To those of you that have been declined for a mortgage due to a repossession we urge you to stop! Don’t do anything until you’ve spoken to an expert.
Most applicants that approach a high street bank will immediately fail credit score anyway, but can occasionally (depending on the date of the repossession) slip through to get an initial agreement in principle. This happens because each lender uses a different credit reference agency to carry out their initial credit score, and of the main 3 agencies they all hold different information about you, not all of which is accurate. If you approach a lender that uses Experian for example, and the repossession isn’t showing on their system, then you may well be approved. This is dangerous because it gives you a false agreement – if the lender’s policy is that they don’t accept applicants for new mortgages who have been repossessed then they never will, regardless of the circumstances at the time or your perfect record since.
What happens on a lot of occasions (and as you read this it may have happened to you) is that a valuation gets booked and paid for; solicitors are instructed and paid for; and everything appears to be going through nicely, until at the last minute the lender notices you were repossessed in the past and then declines you.
With the technology and records at their disposal these days, trying to slip it past them is futile and you need to simply find a lender who is accepting of the situation from the outset.
To ask an expert a question about mortgages if you've been repossessed in the past, or have had any other adverse credit issue, click the button below...