How to get a Mortgage With Defaults
Worried that having defaults will stop you from getting a mortgage? The brokers we work with can help find the mortgage for you!
Firstly, have you had a default registered in the last 6 years?
No impact on your credit score
Author: Pete Mugleston - Mortgage Expert, MD
Updated: December 15, 2021
Having a default listed on your credit report isn’t the end of the world, and shouldn’t stop you applying for a mortgage. As with many credit issues, the severity and age of the problem is key, for instance a four year old default is much less of a problem than one that is less than twelve months old.
This article will guide you through the process and show you what, and what not to do when applying for a mortgage if you’ve previously had a financial default.
The following topics are covered below...
Can you get a mortgage with a default?
Yes, it’s possible but it can be fairly complex and time-consuming, particularly if you’re trying to do this on your own without any assistance. Many mortgage lenders who accept defaults will look at applications on a case by case basis. They will almost certainly focus on the age and severity of the default.
Here’s a number of simple steps we recommend you take to give your application the best chance of success…
Get your credit report
Before you put in your application it’s important to find out exactly what is on your credit file.
You can use credit reference agencies, such as Experian, Equifax and Callcredit to see if there are any major credit black marks on your credit history. These services are usually available on a fee-free basis and it’s well worth spending time doing this.
This means you can make sure your file is up to date, and even challenge some of the information if you think it is inaccurate, or out of date.
Keep an eye on your finances
It’s important that you avoid applying for any new loans (including credit cards) or other financial commitments in the weeks or months before applying for a mortgage.
Also, make sure that your utility bills, credit and loan repayments are kept up to date and that they are paid promptly. Lenders want to be convinced that you are financially responsible.
Get your deposit together
The more severe the default, the more deposit you may need. While many mortgage applicants can borrow up to 95%, you may find that the lender will insist on a higher deposit to offset the perceived risk.
Below is a table that is an indication of deposit needed and the loan to value (LTV).
Loan to value is the amount of equity, versus the mortgage debt, you will initially have in the property. For example, a 5% deposit will give you an LTV of 95%, while a 25% deposit will give you a 75% LTV – the lower the LTV, the more likely a lender will consider your application.
The more severe or recent the default, the higher the deposit you will need.
|Age of default||When default was paid off||Other adverse credit||Loan to Value (LTV) required||Approximate interest rate|
|3 Years||Default over 3 years old||May consider 1 0r 2 missed payments in last 2 years||95%||5-5.5%|
|2 Years||Does not have to be paid off||Can be within 2 years if paid off more than 12 months ago||90%||4%|
|3 Defaults over 2 years||Does not have to be paid off||May be okay with 3 or 4 missed payments in last 12 months||85%||4-5.-5%|
|0 in 4 Years||Does not have to be paid off||None||80%||3%|
|0 in 6 months (2 in 12 months)||Does not have to be paid off||None||75%||4%|
The tables above are indicative only and can depend on the lender and severity of the default. Please talk with an expert mortgage broker for the most up to date information that suits your unique financial circumstances.
Speak to an experienced mortgage broker
Rather than trying to find out yourself which lenders can help, the shrewdest move you can make is speaking with a broker who has experience dealing with applications of this nature.
Not only will they already bring the knowledge you need to identify which lenders will consider applications from someone who has previously defaulted, they’ll also be able to help prepare all the supporting evidence and documentation.
If you get in touch, we can arrange for someone to call you straight away.
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How the type of default can affect your chances
There are many types of defaults, some are more serious than others. For example, if you’ve defaulted on a mobile phone contract, this is treated by many lenders as relatively minor and in many cases, it may not affect your application at all.
However, if you’ve defaulted on a mortgage or secured loan, then this will raise red flags with most mortgage providers. Having said that, all lenders are different and some will see any default, no matter how minor, as a concern when it comes to processing your application.
The good news is that an experienced broker will know which lenders are more lenient when it comes to defaults, and help steer you in the right direction.
What is a ‘satisfied’ default?
Simply put, it means that you eventually paid the debt in full. A satisfied default on a credit file is looked on more favourably by lenders than an unsatisfied debt, as it shows a determination on your behalf to meet your obligations.
Lenders who accept applications with defaults
Generally, most mortgage providers will consider applications from borrowers with satisfied defaults, as long as other criteria is met such as affordability assessments and deposit, but with a little more scrutiny than someone with no adverse credit.
These mortgage lenders include –
|Natwest||West Brom||Leeds Building Society|
|Here you may face extra scrutiny by their underwriters, and they will take into consideration the value of the default and the date it was registered.||Will assess your overall risk and take your credit score into consideration.||They will only consider your application if the default was registered over 4 years ago and wasn’t higher than £500.|
If your default is unsatisfied then your choice of lenders will be more restricted.
That is not to say that getting a mortgage is impossible, it’s just that lenders are a lot more cautious in these circumstances and may look much more closely at your application.
|They will look at the age and value of the default, and may pass your application onto a senior underwriter.||If the outstanding default was more than £100 and happened in the last 12 months, they will decline your application.||Your mortgage application will only be considered if it is a 2 year old default or more||This lender will only consider your mortgage application if you’ve had no new defaults in the last 6 months.|
Make sure you speak with your mortgage broker first before approaching any lenders directly. They’ll be able to use their expertise to compile all the supporting evidence you’ll need to bolster your application, giving it the best chance of success and also save you considerable time in the process.
Which lenders have you already tried?
40% of our customers had been declined elsewhere before coming to us. The brokers we work with will be able to assess your circumstances and then identify the right lender for you instead of going direct.
Can you get a mortgage with partial settlements?
Yes, it’s possible. A partial settlement means your creditors have agreed to settle for a lower amount than was originally outstanding in order to recoup at least some, if not most, of what was borrowed.
From a lender’s perspective, they would view a partial settlement in the same way as a full repayment of a default debt. The details of the default will still remain on your credit report for the same amount of time.
If a lender won’t consider applications for defaults then the same would go for partial settlements. But this also applies the other way for lenders who can help with cases of this nature.
This, again, is where your mortgage broker can add real value by identifying those lenders who will consider your application and making sure you avoid those who won’t.
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Some of our success stories
“To be honest, I didn’t think I could get a mortgage with a black mark on my credit rating.
I was made redundant and fell behind on some payments and ended up defaulting on my mobile phone contract.
Fortunately, I found a higher paying job, but the black mark on my credit history stayed and discouraged me from applying for a mortgage.
But after searching online, I found the Online Money Advisor’s website and spoke to them about my problem. The advisor matched me with Adrian, a mortgage broker who specialises in finding mortgages for people with defaults.
He was very understanding and guided me through every step of the way. He was very knowledgeable and knew the right lenders to contact, the ones who took a more lenient view of people with a less than pristine credit history.
And now, thanks to Adrian and Online Money advisor, I’m moving into my new home.”
“I had a small business, but I was hit hard by the lockdown and when money became tight, I was forced into defaulting on a contract.
Business picked up again, but I thought having a default on my credit history had dashed any hopes of getting a mortgage for a home of my own.
How wrong I was. A friend recommended Online Money Advisor and, after some hesitation, I contacted them. It was the best decision I ever made.
The advisor listened to my problem and then, after a few more questions, matched me with a mortgage broker who was a specialist in people with poor credit, and particularly those with defaults.
He couldn’t have been more helpful. He told me there were a few simple things I could do to help my application, and he did the rest.
He found a specialist mortgage lender willing to accept my application, even though I had a default.
I have to confess, I wasn’t really hopeful, so you can imagine my surprise when my application was approved.
I can’t thank the team at Online Money Advisor enough.”
Get matched with a mortgage expert who specialises in poor credit
Finding a mortgage with a default can be tricky but with the right guidance and advice the process can be much more straightforward.
The brokers we work with can help you find the best lenders for exactly these types of circumstances, saving you a lot of time and stress. In effect, they’ll be able to manage your application on your behalf so you won’t have to do this alone.
Call 0808 189 0463 or make an enquiry and we can arrange a free, no-obligation call with a mortgage broker who has experience in assisting people with defaults today.
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Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!