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Mortgage with default

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

Mortgage with default

You can apply for a mortgage despite having a default on your report, however, like other credit issues, whether you qualify, your credit limit, and interest rate depend on the severity of the default and how recent it is.

High street lenders have a narrow criterion for qualifying for a mortgage with credit issues, but specialist mortgage brokers can help you find a suitable lender. Defaults impact your application process less than other issues, like bankruptcy and CCJs. Therefore, you stand a better chance of qualifying for a mortgage with a default.

This article will discuss the impact of a default on your mortgage application and how to apply.

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What Is a Default?

Default refers to missed payments. Although one or two missed payments are not too detrimental to your credit history, several missed payments can lower your credit score significantly. After several consecutive missed payments, the lender will send you a formal default notice.

A default notice is a formal letter that a creditor or lender sends to you if you have missed three to six consecutive payments. It is a legal requirement if your debt is regulated by the Consumer Credit Act. It stipulates the following:

  • The agreement terms that you have broken
  • Overdue amount and total outstanding debt balance
  • A date by which you should pay the arrears
  • What happens if failing to clear the arrears
  • Window period within which you should reply to the default notice

If the debt is not regulated by the Consumer Credit Act, the lender is not obligated to send you a default notice, but they can register your missed payment with the credit bureau.

A default notice does not automatically equate to legal action, although it could. The lender can demand that you pay the outstanding balance in full, pass the debt to a collection agency, or repossess assets that were part of the credit agreement, e.g., a property or car that had been registered as collateral for a secure loan.

Some lenders may allow you to keep up with your debt payment agreement if you bring your account to date. Others would remove the default from your credit report if you pay up the outstanding balance within the time frame stipulated in the default notice.

If you have intentionally withheld the payment due to a disagreement with the lender, contact your lender to resolve the issue to avoid a county court judgement (CCJ). Also, If you have had a change in your financial situation such that you cannot keep up with the initial debt payment agreement, contact your lender to negotiate a more favourable repayment plan.

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Can You Get a Mortgage with a Default?

For most mortgage lenders, a default in your credit report is a major issue as it indicates that you may not be able to keep up with payments if given a mortgage. However, some defaults are more serious than others. For instance, a default on a secured loan or a mortgage is heftier than one on credit card loans and personal loans. The overdue amount also matters. Some lenders may be lenient to lesser amounts.

Other factors determining whether you qualify for a mortgage with a default in your credit history are the number of default notices and how recent they are. Multiple default notices make it more difficult to qualify for a mortgage. Also, the more recent it is, the more consequential it is, as most lenders will be wary of giving you credit.

That said, defaults are considered a lesser issue than CCJs, bankruptcy, and Individual Voluntary Agreements (IVAs). Lenders will be more interested in your recent financial activity. If it shows that you can afford a new credit account, they will be willing to consider your case and may overlook historical credit problems.

How Long Does a Default Last in Your Credit History?

A default stays on your credit report for six years, after which it is removed. As long as it is in your report, it affects your credit score and lenders’ assessment of your creditworthiness. After the six years, you can go on to borrow credit at normal market rates and credit limits as long as you do not have other credit issues on your report.

Keep an eye on defaults transferred by your lender to collection agencies. Some agencies may enter them as a new default, creating a double entry. Instead, they should change the original default to re-assigned. If this issue arises, follow up with the debt collection agency to have them correct it.

Which Type of Lenders Accept Mortgages with Default?

If you have a default on your credit report, it is unlikely that high-street lenders will consider your application for a mortgage. Specialist lenders are your best option, particularly bad credit mortgage lenders. They are lenient in their qualification process and may overlook your default if you settled it or if it has been more than a year since the default was registered in your credit report.

Remember that even if you qualify for a mortgage with a default, the terms of the agreement will not be as competitive as those of a borrower with a good credit history. Your credit limit will be lower while interest rate and monthly repayments will be higher.

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How Much Can I Borrow for a Mortgage with a Default

Many factors come into play when determining your credit limit for a mortgage. Aside from your credit history, lenders also conduct an affordability test on you. The lender seeks to establish if you can afford the mortgage as part of your monthly spending alongside your recurring bills, expenses, and other debt payments. Therefore, the lender compares your monthly or annual income against your expenses. They also calculate your debt-to-income ratio.

Based on their assessment of your creditworthiness and affordability, the lender determines how much they are willing to offer you. Defaults on your credit records indicate that you are at high risk. Therefore, lenders may stipulate a lower credit limit for you than for someone with a clean credit history.

Another factor that lenders consider in determining how much mortgage loan to lend you is how much deposit you are willing to put down. Generally, the deposit requirement for mortgages with defaults is 15 to 20%. However, depending on the lender’s criteria, it may be lower or higher. The more you have for a deposit, the higher the chances of getting more credit.

How to Apply for a Mortgage with Defaults on Your Credit History

Consult with a Bad Credit Mortgage Broker to Get a Mortgage with Default

A bad credit mortgage broker will help you find a suitable lender, qualify, and negotiate favourable terms for your mortgage. They have a vast experience and networks in the lending industry. Therefore, they understand the specialist lenders’ eligibility criteria and can help you to customise your application to increase your chances of qualifying.

Can I Get a Remortgage with Defaults?

The pre-approval process for remortgages is similar to that of a standard mortgage. Therefore, the lender checks your creditworthiness and affordability to determine if you qualify for a remortgage and how much to offer you. A default can lower your prospects, but the impact depends on if there are multiple default notices on your credit report, if the defaults were satisfied, how recent they are, and the amount overdue. If you have a default on your current mortgage, it will be much harder to remortgage. However, get in touch with a bad credit mortgage broker for further assistance.

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Do I Have to Satisfy My Defaults to Get a Mortgage?

Both overdue and satisfied defaults reflect negatively on your credit report. However, lenders may be more lenient if the default is satisfied. An unsatisfied default in the last six years stands out as a major red flag and puts off potential lenders. Although a partial settlement is not as ideal as a satisfied default, it is better than an unsatisfied default.

How Much Can You Get for a Remortgage with a CCJ?

Credit limit for a mortgage mainly depends on your income level. Typically, lenders provide a credit limit of four to five times your income. However, other factors come into play and can lower your credit limit. Your credit limit for a mortgage with a CCJ will depend on how recent the CCJ is, if there are multiple CCJs, the amount owed, and whether the CCJ is satisfied.  The lender will also check to see if you have other adverse credit issues on your credit file, e.g., defaults, bankruptcy, etc.

Your credit limit is also determined by the lender’s assessment of your affordability. They will look at your employment history debt to income ratio and recurring expenditures. Your credit report will indicate if you have other credit accounts, such as credit card loans and secured loans and how much you owe. The higher your disposable income, the more likely you will qualify for a higher credit limit.

Finally, your deposit amount influences your credit limit. If you have saved up for a higher deposit percentage, you may have leeway for negotiation with the lender for a higher credit limit.

Work with a Specialist Broker to Get a Mortgage with a CCJ

Specialist mortgage brokers offer your debt advice to help improve your credit score before applying for a mortgage with CCJ to improve the chances of qualifying. They also know the most suitable specialist mortgage lenders and their eligibility criteria. Therefore, they can match you with a specialist lender that is likely to approve your application. They can also help you with the application process and negotiation of the repayment terms. Contact us to speak to your mortgage broker for assistance with getting a mortgage with CCJ.

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How to Apply for a Mortgage with CCJ

Below are the general steps to follow when applying for a mortgage with a CCJ

1. Review Your Credit Report

Check what is indicated about your CCJ by the three credit reference agencies regulated by the Financial Conduct Authority. It is vital to check all the three reports to ascertain that the CCJ information recorded is accurate. You do not know which credit agency your lender will refer to, yet you need a point of reference.

2. Settle or Reach a Repayment Agreement with the Lender OR through the Court.

The best option would be to pay off the CCJ amount and have its status updated to satisfied in your credit report. However, if that is not possible, negotiate a favourable repayment plan with the lender and pay your instalments on time.

3. Contact a Bad Credit Broker

They will help you to identify lenders suitable for you.

4. Submit Your Application

Your bad credit broker will guide you through the application process and how to customise it to improve your chances of qualifying. They will also guide you through the type of documents and proof to provide to prove your affordability and creditworthiness.

How to Increase Your Chances of Getting a Mortgage with a CCJ

Here are tips for increasing the chances of getting a mortgage with a CCJ.

  1. Wait. If you have a recent CCJ, wait two to three years before applying for a mortgage. In the meantime, keep up with your monthly repayment instalments or pay the entire CCJ amount. If you need the mortgage as soon as possible, allow one year since the CCJ was registered to increase your chances of qualifying. You could also wait for six years for the CCJ to be removed from your credit file. That way, you can apply like any other borrower who does not have adverse credit issues.
  2. Improve Your Credit Rating. In the months leading to your mortgage application, take measures to improve your credit rating. Although it takes a long time to improve your credit score significantly, there are some measures to prove to potential lenders that you have gotten better at debt repayments. For instance, avoid exceeding your limit on credit cards. Or, consolidate multiple credit cards and personal loans for easier repayments. You can also take up short-term credit-building loans. Ensure to pay your utility bills on time.
  3. Save Up for the Deposit. Bad credit mortgages are generally low LVT, which means you will be required to make a higher deposit. Therefore, start putting aside money for a deposit as early as possible to enable you to accumulate a large deposit and increase your chances of qualifying for a mortgage with a CCJ.
  4. Get debt advice. If you are struggling to keep up with your debt repayments, get professional advice on better debt management to prevent lowering your credit score further. The professionals will help you with budgeting and offer tips for consolidating and paying your existing debts faster.
  5. Consult with a Mortgage Advisor. They will help you develop a strategy to improve your chances of qualifying for a mortgage with a CCJ. For instance, they will help you understand the eligibility criteria of most specialist lenders and provide tips for meeting them. They can also help with your application and negotiation of repayment terms.

Contact us know if you have a default and want to get the best mortgage rates available

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