Getting a Mortgage with Defaults: Your Comprehensive Guide

If you have defaults on your credit file, the idea of getting a mortgage might feel overwhelming. However, it’s not impossible. There are lenders who specialise in helping people with bad credit, including defaults, CCJs, or even Debt Management Plans, get on the property ladder.

This guide will explain what defaults are, how they affect your mortgage application, and how to improve your chances of securing a mortgage.

What is a Default?

A default is a negative mark on your credit file that happens when you fail to meet the repayment terms of an agreement, such as a loan or credit card. It typically occurs after multiple missed payments.

When a default is registered, it stays on your credit file for six years, even if you pay it off. It’s visible to anyone you apply for credit with, which is why it can impact your ability to secure a mortgage.

What is a Default Notice?

Before a default is registered, you’ll usually receive a default notice from your creditor. This formal letter includes:

• The terms you’ve broken in the agreement.
• The amount you need to pay.
• The deadline for payment (usually within 14 days).
• The consequences if you fail to comply.

If you can resolve the issue before the deadline, the default may not be registered.

Can You Get a Mortgage with Defaults?

Yes, you can get a mortgage with defaults, but it might be more challenging, and you may need to meet specific conditions. Lenders will assess several factors, including:

1. The Age of the Default:
   Older defaults have less impact than recent ones. Many lenders prefer defaults to be at least two years old.
2. The Size of the Default:
   Smaller defaults (e.g., under £500) are viewed more favourably than larger ones.
3. The Type of Default:
   Defaults from non-essential credit (e.g., mobile phone contracts) may be considered less severe than mortgage or loan defaults.
4. Your Credit History Since the Default:
   Lenders focus on your recent financial behaviour. If you’ve managed your finances well since the default, it can improve your chances.
5. Your Deposit:
   A larger deposit (e.g., 15%–20%) can reduce the lender’s risk and improve your chances of approval.

When Should You Apply for a Mortgage After a Default?

The timing of your application can make a big difference.

• Immediately After a Default: You’re less likely to be approved unless you approach a specialist lender.
• 1–2 Years After a Default: Some lenders may consider your application, but you might face higher interest rates.
• 3+ Years After a Default: Defaults have less impact, especially if your credit history has been clean since then.

Can You Remortgage with a Default?

Yes, remortgaging with a default is possible, though it depends on similar factors, such as the age and type of default, your equity, and your current financial situation.

• If your default is older and you have a significant amount of equity in your property, lenders may be more willing to approve your remortgage.
• Providing evidence of why the default occurred (e.g., job loss, illness) can also help.

What About First-Time Buyer Mortgages with Defaults?

First-time buyers with defaults can still get a mortgage, but lenders may require:

• A larger deposit (e.g., 15%–20%).
• Proof of stable income and good financial behaviour since the default.
• Assistance from a mortgage broker, such as Clever Mortgages who knows which lenders specialise in bad credit.

How to Improve Your Chances of Getting a Mortgage with Defaults

1. Pay Off Defaults: Satisfying your defaults shows lenders you’re taking responsibility for your debts. While it doesn’t remove the default from your credit file, it may improve your chances.
2. Check Your Credit File: Ensure all information is accurate. If a default has been added in error, you can dispute it with the creditor or credit reporting agency.
3. Build a Positive Credit History: Focus on making regular payments on any current credit agreements to demonstrate financial stability.
4. Save a Larger Deposit: The bigger your deposit, the lower the risk to the lender.
5. Work with a Mortgage Broker: Brokers have access to specialist lenders and can match you with the right mortgage for your circumstances.

Why Use a Mortgage Broker?

Many people with defaults turn to brokers because:

• They Know the Market: Brokers have experience with bad credit cases and can find lenders who are willing to work with you.
• They Save You Time: They’ll help you avoid applications to lenders likely to decline you, which could further harm your credit score.
• They Access Exclusive Deals: Some specialist mortgages are only available through brokers.

What is a Lender’s Criteria for Defaults?

Each lender has different criteria, but they typically consider:

1. The age, size, and type of the default.
2. The number of defaults.
3. The reason for the default (e.g., unavoidable circumstances like illness or redundancy).
4. Your overall credit history and financial situation.

FAQs

Can I Get a Default Removed from My Credit File?
Defaults can only be removed if they were added in error. Otherwise, they stay on your credit file for six years from the date of registration.

How Long Does a Default Stay on My Credit File?
Defaults remain for six years, even if paid off. Over time, their impact on your credit score diminishes.

Should I Pay Off a Default?
Yes, paying off a default shows lenders you’re taking steps to manage your finances, which can increase your chances of approval.

Final Thoughts

Getting a mortgage with defaults is challenging but far from impossible. By taking proactive steps to improve your financial situation, working with a knowledgeable broker, and applying to the right lenders, you can still achieve your homeownership goals.

If you’re unsure where to start, contact us today. We specialise in helping clients with bad credit find the right mortgage for their needs.

Ready to take the first step? Let’s talk!