If you have a default, you might worry about how this will affect your ability to get approved for a mortgage. It can be worrying to think that your mortgage application could get declined. The good news is, it isn't impossible to get a mortgage even if you have one or multiple defaults on your credit record. However, even one default will still affect your credit score and the deals available to you.

Can I Get a Mortgage with a Default and Is It Harder?

Lenders want to see that you’re likely to keep making your monthly repayments on time, so getting a mortgage with a default on your credit file can be harder than it would be getting a mortgage with a clear credit history. Nonetheless it’s still possible.

There are several lenders who won't accept any kind of default on your credit file, but there are also options if you have defaults - including specialist lenders for people with adverse credit.

Can I Get a Buy-to-Let Mortgage with a Default?

Yes, just as you can get a residential mortgage when you have a default, you can also get a buy-to-let mortgage. Buy-to-let mortgages typically have different criteria from residential mortgages. They also come with higher interest rates and higher minimum deposit requirements.

Can I Get a Mortgage with Settled Defaults?

If you have a settled default, it's easier to get a mortgage than if you have an unsettled default, but it can still be difficult. Ultimately, whether the lender will grant you a mortgage will depend on the default itself and the lender’s criteria. Lenders will consider details such as the type and nature of the default, as well as its value and how long ago it occurred, when reviewing your application.

What Is a Default?

A default is when a creditor chooses to close an account due to the borrower's failure to make their payments. This doesn't usually happen after a single missed payment, but rather when the borrower has failed to make multiple payments in a row. Defaults can come from missing mortgage payments, bills, utility bills, overdrafts, car finance and more.

What Is a CCJ?

Defaults and CCJs (County Court Judgements) usually go hand-in-hand. If you have defaults that the company cannot recover, they may request a County Court Judgement, which is the next, and very serious, step in recovering what they’re owed.

Both defaults and CCJs can make it harder for you to get a mortgage offer – but not impossible.

How Long Does a Default Stay on My Credit File?

Defaults stay on your credit file for 6 years. This is counted from the date of the default, even if you pay it off in full. If you're applying for a mortgage any time within the 6 years following a default, mortgage lenders are able to see this when they do a hard credit check.

It’s worth bearing in mind that some lenders may ask if you’ve ever had a default when you fill out your mortgage application. This won’t necessarily affect your application with them, especially if there’s no longer any residual impact on your credit score.

What Do Lenders Look at When Dealing with Defaults?

Due to the varying nature of defaults, lenders will review them against their own criteria when deciding whether to lend to you.

Some of the details taken into consideration are:

Satisfied Defaults

A satisfied default is when you have finished paying off the debt and have settled with the company. This is less likely to be a problem when applying for a mortgage compared to an unsatisfied default. Satisfying the default suggests to the mortgage lender that you’re up to date with your financial issues and that you are not trying to avoid your debts.

Unsatisfied Defaults

Unsatisfied defaults are viewed less favourably compared to satisfied defaults so they can make it harder to get a mortgage offer. This is because failing to satisfy a default can suggest that you’re not able to stay on top of your finances, making you a riskier prospect to lenders. Despite this, there are a handful of lenders that will consider an application with an unsatisfied default, but this could restrict you to more expensive products.

Age of Default

The key thing about timescales of defaults is how long ago it was registered and satisfied. The longer ago the default was registered and satisfied, the more lenders will consider your application and the better the rates and products you’ll have access to.

Value of Default

The value of the default is also very important. A larger default makes it less likely that you'll get a mortgage offer, while smaller defaults will be looked at less negatively.

Type of Default

The most concerning type of default for mortgage lenders is defaults on mortgage payments because this shows an example of someone missing payments on a house loan in the past. Some lenders will be less concerned about defaults on energy, internet and phone bills, or car loans, as these do not suggest you're more likely to default on your mortgage.

Why the Default Occurred

Some lenders – including adverse credit lenders - will be willing to take into account why a default occurred. For example, if the default came from a bill sent to an old address, they might be more understanding and willing to accept a mortgage application. If the default was due to poor financial planning they would be less likely to accept your application. However, many lenders won't consider the reason for the default.

What Are Some Sample Criteria for Lending to People with Defaults?

Every lender has different requirements regarding defaults. While you can expect some lenders to be willing to consider an applicant with a default, others, such as Barclays, won't accept applications from people with:

  • Unsatisfied CCJs
  • Outstanding defaults
  • Partially settled defaults
  • More than one satisfied CCJ with the latest within the last 3 years
  • Satisfied CCJs totaling more than £200 within the last 3 years
  • More than 3 satisfied defaults where the latest occured within the last 3 years
  • Satisfied defaults totalling more than £200 where the latest occured within the last 3 years
  • Greater than 15% shareholding in a limited company with outstanding judgements totalling more than £5000

If you have any of the above, you might struggle to find a mortgage with a high street lender. Consider instead applying with a specialist lender via a mortgage broker like John Charcol.

Using a Specialist Adverse Credit Lender

Specialist lenders have different criteria which allows them to consider people who have defaults, missed payments, or other poor credit issues. They manually underwrite mortgage applications which allows them to learn about the bad credit event and how it occurred.

Using a mortgage broker like John Charcol gives you access to many of these specialist lenders who don't all trade directly with the public. A mortgage adviser will also be able to assess your situation and match you with the best deal for your circumstances.

Criteria for Bad Credit Mortgages

Using a specialist adverse credit lender does have some drawbacks. The criteria and terms are often not the same as with regular lenders. This is why getting the best terms via a mortgage broker is so important.

Using a specialist lender will usually affect your mortgage terms in several ways:

  • Affordability calculations - this is how a bank or lender determines how much you can afford to borrow and pay each month, based on your income, outgoings and perceived risk. Having defaults means that you may not be able to borrow as much as someone with a better credit history
  • Deposit requirements - while standard mortgages can be found with minimum deposit requirements of 5% - 10%, you’ll often have to put forward a bigger deposit amount if you need a poor credit mortgage. Depending on how many defaults you have in your credit history and the lender you go with, the deposit minimum on a residential mortgage could be as high as 25%
  • Interest rates - as bad credit mortgages are a specialist type of mortgage, you'll often find interest rates are higher, due to the perceived higher risk. You can sometimes try to get a lower interest rate by increasing your deposit amount

Getting a Mortgage for a Specialist Property While Having Defaults

Your mortgage options will be extremely limited if you want to secure borrowing on a specialist property and you have defaults on your credit file.

Getting a poor credit mortgage requires an adverse credit lender. This limits the products available to you. Lenders also have different criteria regarding different types of property and only some allow non-standard construction, again limiting the products available to you. This basically means that if you have defaults and want to secure borrowing on a specialist property, you’ll need a broker like John Charcol who can find a lender that can accommodate your credit situation and lend on specialist properties.

Specialist property types include:

  • Non-standard construction - buildings with unusual construction types such as concrete walls, metal frames or prefabricated panels. These are considered higher risks because the value can drop unexpectedly and the repair and maintenance costs on the buildings are high
  • Unusual flats - some flats can be harder to get mortgages for - including very small flats, high rise flats, or flats with specific cladding types
  • Houses near hazards - property built near mineshafts or on contaminated land can pose a higher risk, due to valuation concerns
  • Ex-council properties - houses and flats that are ex-local authority can be harder to get mortgages for, regardless of the size or location

Can I Get a New Build House with Defaults?

There are lenders willing to consider applications with defaults on new build houses. It’s best to speak to a mortgage broker if you’re looking for this kind of product.

Can I Get a Shared Ownership Mortgage with Defaults?

It may be harder to get a shared ownership mortgage with defaults on your credit report than without, as not all adverse credit lenders offer shared ownership mortgages. In a situation like this, speak to a mortgage adviser to explore your options.

Do I Have to Declare Defaults to a Mortgage Lender?

Yes, applicants must declare any defaults and CCJs on their application, whether the debt is satisfied or not. If you do not declare your defaults, you could be committing fraud. This could mean that your mortgage application gets rejected and you could be prosecuted. Lenders will be able to see defaults and CCJs when they do a hard credit check on you during the later phases of the application, so there's no point in trying to hide your financial history from banks or lenders.

Will a Credit Card or Overdraft Stop Me from Getting a Mortgage?

While credit card debts and overdrafts can make it harder to get a mortgage, they're not as limiting as defaults. Credit card debts or overdrafts will affect your affordability, so you might not be able to borrow as much from a lender. This is because lenders will calculate how much you can afford to pay on your mortgage alongside your other debts and overdrafts, though you may be able to get a debt consolidation mortgage that helps lump your debts in with your mortgage payments. If your debts are a large portion of your income, then you might be rejected.

How Can I Check My Credit History Before Applying for a Mortgage?

If you’re worried about your credit history, it’s definitely a good idea to check it before you apply for a mortgage. Start by performing a credit check using one of the main credit agencies, such as Experian. This will show an overview of your credit alongside a credit score.

Although this credit score won’t be the same as the one the lenders come up with when performing a credit check, it’s a good indicator of your overall credit profile. Nonetheless, bear in mind that it won’t show a detailed history of your defaults and other problems. Look back through your financial records to get more information on this.

Mortgage Applications with Defaults - Roundup

Getting a mortgage with a default can be more challenging and will likely affect the deals available to you, but it's not impossible. The main factors lenders will consider are whether the defaults are satisfied, how many you have, their value and how long ago they were registered.

Going through a mortgage broker will give you more options and allow you access to a suitable bad credit lender. At John Charcol, we have experience in helping people get adverse credit mortgages and we work with lenders that only operate through intermediaries. With our experience, we'll find you the best mortgage option for your situation. Get in touch today on 0330 433 2927 to see how we can help.

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