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Mortgage with a Default

Mortgage with a Default

Having a default within your credit file is a common reason for a lender to decline a mortgage. This is particularly apparent with high street lenders, who require clean credit reports in order to be approved for one of their mortgages.

However, it is not impossible to get a mortgage with adverse credit history.

This article helps you to understand how you could get a mortgage if you have a default on your credit record.

Can I get a mortgage with a default?

The short answer is yes, it is possible to be accepted for a mortgage whilst having a default. However, you need to find a lender who specialises in adverse credit mortgages. As we’ve said, it is more common for a high street lender to decline your application. This is because it’s too high a risk for them to take.

Where can I find a specialist mortgage lender?

Speaking to a whole-of-market broker can help you find lenders who do provide mortgages to those with credit issues such as defaults.

This does not mean that your application will be approved but a broker with the right experience and expertise can help you increase your chances of being approved by these specialist lenders.    

Are there defaults that are considered more severe than others when lenders assess your application?

Absolutely. Deferring on a phone payment in most cases is not viewed the same as a defer on a loan. The majority of lenders interpret defaults differently based on the account type. However, there are some that view all defaults with the same severity.

Defaults fall into two classifications, severe and non-severe. Examples of those are as follows:

Severe

  • Missed mortgage payments
  • Bridging loan defaults
  • Car finance defaults
  • Business loan defaults
  • Personal loan defaults
  • Lease agreement defaults
  • Secured loan defaults

Non-Severe

  • Missed mobile phone repayments
  • Late credit card repayments
  • Missed utility bill payments
  • Mail order account default
  • Payday loan default

It is important to note however, that the more credit issues you have on your report the more difficult it will make it to get a mortgage.

You should also know that whilst it is still possible to get a mortgage with defaults and credit issues, because you are a higher risk to the lender it can mean increases to your rates and fees.

Will a satisfied default make a difference?

Whilst you may think that you need to repay past debts before applying for a mortgage the reality is that in the world of mortgages this is simply not the case.

However, satisfying a default can improve your credit score and shows that you have taken financial control. As a result, it can increase the number of lenders available to you.

That being said, specialist lenders do not always run a credit scoring system when it comes to assessing applications. The most important thing they are looking for is when the default was registered.   

Whether or not you have satisfied your default there are still a pool of lenders out there who would still potentially lend to you.

How do I get a mortgage with a default?

You need to get your application right the first time round and make sure everything is detailed and matches up. This means a full open and honest history is needed.   

The first thing to do would be to find out exactly what is on your credit reports. We say reports plural as not all lenders use the same credit reference agency, so you will need to check all major credit reports.

There are sites where you can see all your credit reports in one place such as Check My File.

Once you have these and if you are investigating your report yourself you are looking at all the credit accounts for account type (e.g. credit card / loan / mobile phone), default dates, default amounts, and any settlement dates. You may also want to check through for other issues such as late payments, arrears, and public record information, for CCJ’s, IVA’s, and bankruptcy information. 

You could however send your reports to an expert mortgage advisor who can help find you a specialist lender suited to you and your circumstances.

As with anyone who speaks to a mortgage advisor, they will go through all of your information and ask questions such as how much you are looking to borrow and what deposit you have. With this information advisors can then see which products and lenders you would qualify for.

Every lender has their own criteria in which they assess an application ,so it’s important that you know and understand that criteria before applying. This will include how long ago the default was registered as it gives an indication as to how high their risk is.

How much could I borrow?

Lenders will assess your maximum borrowing capacity based on your income, outgoings and other financial commitments. With a clean file and no defaults, the industry average is up to five times your income. With defaults, your maximum borrowing maybe limited as you are considered to be a higher risk to lenders.

There is no clear-cut answer in terms of how much you can borrow. However, if a default was over three years old you may still be able to get a maximum amount mortgage with good rates.

Being a higher risk or having more severe defaults means that lenders who take you are would look to minimise their risk in the form of higher deposit requirements, premium rates and fees.

Again, speaking with an experienced and expert mortgage advisor who specialises in this area will help you to establish the maximum you could borrow and give you the best chance of getting a mortgage approved first time round. They will also know the right lenders to go to for your circumstances not leaving it to chance.

Contact us at Online Mortgage Guru on 0345 3669799 or email us via info@theonlinemortgageguru.co.uk and we will put you in touch with a suitable specialist to handle your enquiry. 

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