Mortgage After Defaults

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What is a Default Notice?

A default notice is a notice that a creditor will place on your account after a number of missed payments. This will usually be if you miss between three and six payments, depending on the terms of each individual lender.

If you receive a default on your credit account, you will have fourteen days to reply to the creditor to try and rectify the situation. If you fail to do so, the result will usually be that your account will be closed and the balance on the account will become immediately payable in full.

Will a Default Affect My Credit Score?

A default will remain on your credit file for six years. This will damage your credit score and make it more difficult to obtain credit in the future. Late and missed payments will also remain on your credit report for six years, however, they do not have such a detrimental effect on your score as a default.
When assessing a mortgage application, a lender will look at both the date of the default and the amount owed. They will also see if you have made an effort to pay the debt off. The more recently the default was registered, the less likely the lender is to accept your application.
Before applying for any mortgage, it’s always a good idea to access your credit file and be aware of your credit rating. If your score is low, plan ahead and spend some time to improve your score. This will give you more chances of acceptance in the future.

Can I Get a Mortgage With a Default?

There are some specialist lenders who will consider offering a mortgage to those with lower credit scores. However, the likelihood of acceptance will relate to the reason your credit score is low. For example, a couple of late payments will give you more chance of acceptance than those who have a default or IVA against them.

The lender will also consider whether your missed payments or defaults were on a secured loan or unsecured debt. Unsecured debts are those you owe to service providers, such as credit card or phone companies. A secured loan is more substantial, like a mortgage or car finance agreement. Essentially it is any credit agreement whereby the item can be subject to repossession if you regularly miss payments.

If you do have a default, all is not lost, there are lenders who offer bad credit mortgages. The downside to this, is that they will almost certainly have much higher interest rates than a standard mortgage. Unfortunately, you will also have a lot fewer options available to you if you have bad debt.

How Much Can I Borrow If I Have a Default?

Having a default on your credit file can affect the total loan amount you will be offered. This is due to the calculation used by lenders when assessing your affordability and may vary slightly from lender to lender.

The general calculation for how much you can borrow, is based on a multiple of your annual income. Those with strong credit scores can borrow up to five times their income. If your credit report shows you are not reliable with repayments, however, the multiple used to calculate will be lower. This example shows how your credit score may affect you, regardless of income:

Income £30k + good credit (x5) = mortgage of £150k

Income £30k + poor credit (x3) = mortgage of £90k

Whilst the multiples used to calculate will vary by lender, you can see how your credit score has the potential to drastically affect the type of home you can afford.

How Can A Mortgage Broker Help if I Have Defaults?

Whilst it’s beneficial to wait until you improve your credit score, if you’re determined to apply for a mortgage with defaults on your credit record, there are people who will be able to help you.

Mortgage brokers, especially those with specialist knowledge of providing mortgage advice to those with a poor credit history, are going to be best placed to help you. With a whole market view of the mortgage products available, they can see which lenders are more likely to accept you based on your personal circumstances.

They will be able to advise you of the most competitive mortgage products available to you, as well as how to improve your credit score, should you be refused.



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