Getting a Mortgage With a Default – Is it Possible?

Defaults are one of the main reasons people find difficulty in getting a mortgage.

Getting a mortgage or remortgaging can be a stressful experience – even more so if you have defaults or another adverse credit type on your profile. Many high-street banks require a clean credit file before they can approve a mortgage, but luckily there are lots of alternative mortgage lenders out there that do accept borrowers with defaults, so all hope is not lost.

What is a default?

A default is what happens when you’ve missed a number of payments to your creditor (lender, mobile phone network provider, utility company etc.). It also happens when you don’t pay the full amount owed to the creditor. Defaults are archived for six years on your credit file, whether or not you’ve paid them off.

Can I get a mortgage if I have a default?

Simply, yes. Many lenders take into account your whole application rather than focusing only on defaults. It can take some time to find the right lenders for your situation but Mortgage Buddy is here to take the legwork out of searching for your mortgage.

How much can I borrow with a default?

Speaking generally, the cleaner your credit file, the more you’ll be able to borrow on your mortgage.

With a clean credit file you should be able to borrow up to 4.5x (or sometimes 5x)  your income.

With an unclean credit file there are several ways lenders assess how much you can borrow. For example, if your default is more than three years old, you might be able to borrow 4x your income, and some lenders can stretch to 5x your income in this circumstance.

Apart from defaults, lenders also assess your income, outgoings, bills and other costs – this is so that they can get an idea of how you manage and spend your money. Lenders will review your bank statements (usually from the last three months) when they’re assessing this. Once they’ve done their assessment, the lender will have their loan-to-value (LTV) ratio – this is the percentage of the property’s value that the lender is able to lend to you.

What should I do if I want a mortgage with a default?

Each lender will assess a mortgage application in their own way and have their own criteria to judge them by. It’s important to figure out before you apply exactly what it is that lender is looking for. A mortgage advisor could help you with this part as there are a lot of complex details to get your head around and the criteria applied by different lenders may make it hard to see where your best opportunities for approval are.

how does a default impact mortgage

Check your credit file regularly

Whether or not you’re applying for a mortgage, it just makes good sense to keep up to date with your credit file. It becomes even more important, however, when you’re trying to get a mortgage. Your credit file is one of the key sources of information lenders will use when assessing your application.

There are lots of sites that will let you check and stay updated with your credit file. Some people worry that just checking their credit file will leave a mark on their file and adversely affect their chances of getting a mortgage or credit in the future. This is generally untrue – there are lots of credit checking sites that let you check your file without affecting your actual credit history.

Who Do We Recommend and Why?

We partner with and recommend CheckMyFile to our customers as it combines data from Equifax, Experian and TransUnion. Different lenders use different credit reference systems to review and assess your profile so this gives an incredibly good insight into what lenders may see when reviewing your mortgage application.

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Do I need to satisfy my default before getting a mortgage?

It’s generally slightly easier to get a mortgage if you’ve satisfied any past defaults. But it’s surprisingly not as important as you might think. Many of the lenders consider mortgage applicants with defaults but what’s generally more important to these lenders is the date the defaults were registered. For example, an unsatisfied default that’s 5 years old wouldn’t be as important to lenders as a 2-year-old default whether or not that one is satisfied.

Satisfying your defaults will improve your credit file which could improve the range of lenders you can borrow from. But it can take time to satisfy defaults, which is why it’s really useful to know that there are lenders that lend to people with unsatisfied defaults.

Types of Default That Will Impact Mortgage Applicants

All lenders use their own criteria when they’re assessing mortgage applications. Some lenders judge all defaults in the same way, which can seem a little unfair to borrowers.

Other lenders, however, judge defaults differently. These lenders might judge a default on a loan more severely than a default on a mobile phone bill, for example. Here’s a very basic guide to how these lenders judge different types of default:

  • Less severe defaults:
    • Mobile phone defaults
    • Mail order account defaults
    • Utilities defaults
    • Payday loan defaults
    • Credit card defaults
  • More severe defaults:
    • Personal loan defaults
    • Car finance defaults
    • Lease agreements defaults
    • Secured loan defaults
    • Bridging loan defaults
    • Mortgage defaults

How soon after a default could I get a mortgage?

It’s generally accepted that the longer the default has been on your credit file, the less effect it’ll have on your mortgage application. After six years defaults are wiped from your credit file.

Does the size of my default matter?

If your default is over a year old, its size generally won’t matter to lenders. For defaults that are younger than 12 months old, many lenders set a maximum amount of around £1,500.

How many defaults would affect my mortgage application?

Lenders will generally accept applications with up to two defaults that are younger than two years old. With defaults that are older than two years old, many lenders aren’t so bothered about how many you have.

Can I remortgage with a default?

Yes. As with a regular mortgage, the options available to you will be determined by how old your defaults are, how many there are and the types of default.

In this article we’ve given you the information you need if you have a default and you’re looking for a mortgage. We search the market to find the right mortgage for your individual situation. Get a quote today to get your mortgage ball rolling.