How to get a Mortgage with a Default

By Kev TilleyCeMAP

Last Reviewed: 18th March 2021

Unfortunately, if you have missed a loan repayment you may have a default on your credit report, resulting in bad credit.

A default is the terminology used when a negative payment record is placed on a credit report due to unpaid arrears.

Typically, when a default is applied, the lender no longer views the person as a customer, but as a debtor instead.

Defaults provide a warning light to prospective lenders regarding the level of potential risk involved as they demonstrate that the borrower has had a previous history of mismanaging scheduled payments.

In this guide, we will explore the impact of a default and the process of obtaining a mortgage with a default on your credit history.

Can I Still Get a Mortgage with a Default on my Records?

Firstly, if you are in the position of seeking a mortgage but knowing that you have a previous default recorded on your credit report, it is important not to panic and to understand that every lender will take a different stance.

Defaults are a common reason for a mortgage application to be declined, especially by high street lenders, however simply because one lender rejects a mortgage application, does not mean that it would be the end of the journey.

To either take that first step onto the property ladder or to re-mortgage and move is still possible, it’s simply about finding a lender that has criteria compatible with your circumstances.

There are mortgage lenders that specialise in helping customers that have adverse credit history for example.

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However, should you already have had a mortgage application be declined, it is important to establish the full reasons why so that actions can be put into place to rectify the concerns, before making any further applications. Each mortgage application would add a further marker to a credit file and therefore the next steps should be carefully managed.

Therefore, at this stage, it would be highly recommended that advice from an Independent Financial Advisor is sought to review the personal circumstances, details of any defaults or declined applications, and offer specialised financial advice to discuss other options available.

Financial Advisors are also best placed to find the most suitable option, on the most favourable terms available due to their insight into the lending market however they must be privy to the full circumstances in order to help, therefore it is always best to be open and honest.

Are Some Defaults worse than others?

Quite simply, yes. The severity of default will depend on the type of agreement that payments have been missed within.

There are two types of defaults, depending on the type of credit agreements, as follows:

  • Regulated credit agreements – A default may occur following a missed repayment and subsequently, the borrower failing to respond to a Notice of Default issued under section 87 of the Consumer Credit Act 1974. One a default notice has been received, a borrower would have 14 days to make the outstanding payment, or the default will be added to the borrower’s credit report.
  • All non-regulated credit agreements – Where agreements are not regulated, a default recorded on a borrower’s credit report represents that the lender has concluded that the relationship between lender and borrower has broken down.

How Long Does a Default Remain on a Credit File?

A default will remain on a credit report for six years following the event, regardless of any payments made to clear the debt.

Can a Default be Removed from my Credit Report?

If a default reported on a credit report is accurate, it is unlikely to be removed either by the lender themselves or a credit reference agency. In this case, the default is legally bound to be reported for the duration of six years, after which it will be removed automatically.

However, if the default is incorrectly reported, it can be disputed by directly contacting the relevant lender. The lender has a responsibility to accurately amend the information if they have made a mistake.

Unfortunately, errors can occur and therefore it is important that credit files are checked regularly to ensure that the information stored on the file is up to date and accurate.

How Soon Following a Default can I Obtain a Mortgage?

The timing of the negative event on an applicant’s credit history will be key. The longer duration of time that has passed since the default being added to a credit file, will help as the default is less likely to impact the ability to obtain a mortgage and if successful, the mortgage terms offered.

Can I get a Mortgage with a Satisfied Default on my Records?

Unfortunately, as we have briefly discussed, the repayment of the debt does not clear the default on a credit file and therefore the duration of time that has passed since the default was recorded is more of a concern to potential lenders.

However, by satisfying a default, a borrower’s credit score is likely to improve, which may in turn assist the hunt for a mortgage as some lenders will categorise the risk involved slightly differently.

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How Much Can I Borrow If I Have a Default on my Records?

Typically mortgage lenders who are willing to lend to those with adverse credit history may have tighter affordability checks than high street lenders which may impact the total value of any mortgage offer.

Should the maximum level of borrowing offered to be limited due to risk factors involved, higher deposits are likely to be needed.

How to Get a Mortgage with a Default Summary

We have discussed the factors involved with being issued a default and the impact that defaults have on credit files and the ability to obtain mortgages.

As such, it is highly advisable that a copy of a credit file is obtained before applying for a mortgage to check the report for any inaccurate data.

Details of the credit report can also be provided to an Independent Financial Advisor, who can advise the financial options currently available.

Give us a call on 01925 906 210 to speak to an advisor, or contact us for mortgage advice that’s personal to you and takes your credit history into account. That way you’ll know where you stand in the mortgage market and we can guide you on your route to securing a suitable loan.

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