Defaults on a credit file are one of the most common reasons for mortgage declines with many lenders, especially on the high street where generally only clean credit applicants are approved. Because of the frequency of enquiries we receive, the advisors we work with are some of the best specialists in the UK, and successfully arrange mortgages for people with defaults every day.
Thankfully, there are several default mortgage lenders who are happy to approve applicants with all sorts of defaulted credit accounts on their file.
- Can I get a mortgage with a default?
- Process – How to get a mortgage with defaults
- Mortgages with defaults – criteria overview
- Do defaults need to be satisfied?
- Impact of different types of default
- Impact of other credit issues
- Borrowing limits
- Lenders accepting defaults
- How quickly can I get a mortgage after defaults?
Can I get a mortgage with a default?
Yes, absolutely. It all depends on the lenders criteria at the time of application, but generally there are several specialists who approve mortgages for people who have defaults as part of their core business. The important thing to remember is that every lender is different – some specialise in low rates and lend to the clean credit customers on high street, some specialise in self-employed lending, some specialise in adverse credit. The market for adverse credit lending has grown massively since the credit crunch, and some lenders continue to relax their pass level requirements as things continue to develop. Default mortgages in 2017/18 are set to be more widely available than ever. This doesn’t mean it’s easy to get approved – there’s work to do, and typically your advisor needs to know the market inside out to get your application through, so using a specialist is paramount.
How to get a mortgage with a default
To establish if you can get a mortgage with defaults there are certain considerations and things you and your advisor will need to check. The following process should help point you in the right direction and work out if you are anywhere near being able to borrow or not, and if so how much you could get.
If you want a mortgage with defaults on your credit file, this is by far and away the most important part of the process – we can’t stress that enough! Your advisor will only be able to establish which lenders will accept your application by defining your exact situation – mortgages with defaults aren’t often arranged through guesswork, they are complex and your advisor will need to make sure they are doing it right first time.
Lenders have strict a policy, and if you have had defaults in the last 2 years, then there’s really no point in approaching one that doesn’t allow this – you need to find the ones that do.
We say credit reports (pleural) because each lender uses a different reference agency, and if you have had bad credit often the reports will look very different. You can read more about the reasons for this here, but it’s true!
Sign up for all 3 reports here (on the FREE trial) and send them to your advisor for review. Remember to ensure you use a full 6 years address history when you register so the reports pick up everything in your history at every address – the lenders will find it so it’s best to be open and honest about everything so your advisor can see the full picture from the start.
Once you have your reports, send them to your advisor (they will likely ask for them anyway if they know what they’re doing!). If you want to review them yourself then you are looking at all the credit accounts for account type (credit card / loan / mobile phone etc.), default dates, default amounts, and any settlement dates. You may also want to check through for other issues such as late payments, arrears, and public record information (at the bottom) for CCJ’s, IVA’s, and bankruptcy information.
^^^Make a list of these from ALL 3 reports, and have them ready for your advisor to save them time, or just give them the reports to do it themselves.
Getting a mortgage with a default
>>> General criteria overview
The table below covers the range of lending options at various Loan to values (LTV’s). Now lending is possible up to 95% on the Help to Buy scheme even if you have defaults on your file which is an amazing opportunity for many budding homeowners to buy with a small deposit. Those with more severe defaults or more recent defaults will likely need a greater amount of deposit/equity.
|Lender||Maximum Loan to value (LTV)||Date default was registered||Date default was paid off||Other adverse credit conditions||Approx. rates to expect (very rough idea at time of writing)|
|A||95%||All defaults registered over 3 years ago are ignored. Declined if registered in the last 3 years.||Do not need to be repaid||No other adverse credit in the last 3 years – some late payments allowed.||Around 5-6%|
|B||85%||Allowed 2 inside the last 2 years – must be no more than £1,500 in the last 12 months.||Do not need to be repaid||No other adverse credit allowed in the last 2 years apart from some late payments allowed.||Around 4-6%|
|C||80%||All defaults registered over 2 years ago ignored. Also ignore mobile phone defaults if registered at any time.||Do not need to be repaid||No other adverse credit allowed in the last 2 years apart from late payments.||Around 4-5%|
|D||75%||No defaults in the last 3 months.||Do not need to be repaid||Other adverse can be considered||Around 7-11% (for more severe adverse credit)|
Can I get a mortgage with a satisfied default?
Most people in the industry assume that repaying bad debts is important when it comes to being approved for new borrowing, but strangely this isn’t the case in the mortgage world. Yes, it will almost certainly improve your ‘credit score’ if you have satisfied your defaults before you apply for a mortgage, but it is not always essential with the more flexible lenders because often they don’t actually run a credit scoring system anyway.
Mortgages with settled defaults are slightly easier to obtain, and with the adverse lenders who credit score, some will grade your application into a certain ‘tier’ of risk. Which tier you fall into will dictate which rate you’re eligible for with some lenders. Generally, the lenders that accept defaults are really only concerned with when they were registered, not the dates of settlement, so mortgages with unsatisfied defaults are just as easy to be approved for so long as the dates of registration match up.
Does the type of default make a difference with mortgage applications?
Basically, Yes. Lenders will interpret defaults differently depending on the type of account it was, some are deemed more severe than others. For instance, mobile phone defaults are taken with a pinch of salt by some lenders, whereas mortgage or secured loan defaults are treated even more seriously than anything unsecured.
Some lenders see all defaults the same severity, and if you have had one it’s a block mark regardless of the account type, but there is a general opinion of certain account types that tend to fit a certain order of importance:
|Mobile phone default|
|Mail order account default|
|Utilities (gas & electric) default|
|Payday loan default|
|Credit card default|
|Personal loan default|
|Car finance default|
|Lease agreements default|
|Secured loans default|
|Bridging loan default|
Mortgages with defaults and other credit issues
Getting a mortgage if you have other credit issues as well defaults can make things even harder, and will impact the lenders that’ll consider you, the rate, fees, and the loan to value. Typically lenders accepting of more severe credit issues will consider the less severe, so if you just have defaults you’ll have more lenders to choose from than if you have defaults and other issues. It is usually looked at in order of risk to the following hierarchy (most severe to least):
- Current IVA
- Discharged Bankruptcy & Repossession
- Satisfied IVA
- Debt Management Plan
- Mortgage arrears
- Unsecured late payments
- General low credit score
Note: Payday loan use, although not strictly considered as adverse credit, can severely harm your chances of approval.
For more info on these issues then click the links here to read more, or to get specific advice make an enquiry and one of the specialists will establish the best lenders for you.
How much can I borrow if I have defaults?
Generally the adverse credit mortgage lenders are tighter on their affordability than some of the high street. If you are clean credit you can borrow up to 5x income, sometimes more in certain exceptional circumstances. If you have defaults your max borrowing may be limited as the lenders who take on higher risk for the adverse like to minimise the risk elsewhere, hence why they require higher deposit / equity in the majority of cases.
If the adverse is over 3 years old it may be possible to borrow up to 4.5, maybe 5x income, but usually maximum loans sizes are around 4x income. Generally, the more severe the adverse, the higher the risk, and so the lenders accepting it will limit loan to income to a greater degree.
‘Income’ is also a changing concept. All lenders accept 100% of basic salary but some will only accept 50% of overtime, bonuses and other additional incomes. Some will demand 3 years of self-employment where others are happy to lend to those with 1 years trading. Some demand those in employment to have been in the same role for 12 months, some with the same employer for 12 months etc.
Max loans are also limited by other outgoings and financial commitments. Those with personal loans of hundreds per month are less able to afford the new repayment than those on the same income with no other commitments, which makes sense of course.
To establish the maximum you can borrow, you’ll need to make an enquiry and a specialist will go through it with you.
Mortgage lenders who accept defaults
There are a number of default mortgage lenders currently, which ones you’ll fit with depends on the specific details and other wider circumstances such as deposit sources and income etc. What’s important to remember is that all lenders have varied criteria, and will accept and decline different things – the only way to ensure you are approved is to not only use a whole of market advisor, but an advisor who actually knows the whole market – often brokers will have the scope of every lender but if they don’t arrange adverse credit mortgages often then they seldom know which lenders do what. Approaching certain mortgage lenders with defaults can be an instant decline depending on when they were registered and the amount of deposit/equity you have. If you approach too many of the wrong lenders the credit searches against your name can decrease your score and harm the chances of an approval.
How soon after a default can I get a mortgage?
|Lender||Time since default registered||Max number of defaults||Max amount of defaults||Max LTV available|
|A||In the last 12 months||2 in 12 months||£1,500 in 12 months||85%|
|B||Between 12-24 months||2 in 24 months||£1,500 in 12 months, unlimited after 12 months||85%|
|C||Between 24-36 months||Unlimited||Unlimited||85%|
|D||Over 36 months ago||Unlimited||Unlimited||95%|
Get a mortgage quote if you have defaults
If you’re thinking “will a default affect me getting a mortgage?”, or you are ready to get an application underway, then make an enquiry here and we will pass you to one of the specialists.