Getting a Mortgage with Defaults

What Are Defaults?

A default occurs when you miss multiple payments on a credit agreement, such as a personal loan, credit card, or utility bill, and the lender decides to close your account. The default is then recorded on your credit report, where it remains for up to six years, signalling to future lenders that you failed to meet the terms of the agreement.

Defaults are considered a significant negative mark on your credit file, as they indicate a high level of risk. This can make getting approved for a mortgage more difficult, as lenders typically view applicants with defaults as higher risk. However, not all defaults are treated equally, and some lenders may be more lenient depending on the circumstances and the type of default.

Types of Defaults

There are several types of defaults that can appear on your credit report, including:

• Unsecured loan defaults (e.g., personal loans or payday loans)
• Credit card defaults
• Utility bill defaults (e.g., gas, electricity, or water bills)
• Telecommunication defaults (e.g., mobile phone contracts)
• Mortgage or secured loan defaults

The impact of a default on your mortgage application will depend on the type, the amount, and how long ago it occurred. Generally, defaults on secured loans (like mortgages) are viewed more negatively than defaults on unsecured debts, such as credit cards or utility bills.

How Do Defaults Affect Your Mortgage Application?

Having a default on your credit file can make it harder to get a mortgage approved, but it doesn’t necessarily exclude you from getting one altogether. The key factors that lenders consider include:

1. The age of the default: The older the default, the less impact it has. For example, a default that occurred four or five years ago will be viewed more favourably than one that occurred within the last 12 months.
2. The size of the default: Smaller defaults, especially those under £500, may be less of an issue than larger defaults, as they may be considered less serious by lenders.
3. The type of default: As mentioned, defaults on secured loans or high-risk debts (e.g., payday loans) are seen as more severe than minor utility or mobile phone defaults.
4. Whether the default is satisfied: If you’ve repaid the outstanding amount and the default is marked as “satisfied” on your credit file, some lenders will view this more positively.
5. Your overall credit profile: Lenders will look at your complete credit history, including any other adverse events (e.g., CCJs, missed payments, or bankruptcy). If the default is an isolated incident and your credit history is otherwise strong, you may still have good chances of approval.

Affordability on Mortgage with Defaults?

Your borrowing capacity will largely depend on the lender’s criteria, your credit profile, and the specifics of the default. Most lenders use a sliding scale approach, meaning the higher the risk they perceive, the less they may be willing to lend.

Typically, you may be able to borrow up to:

• 85% to 90% Loan-to-Value (LTV) if the default is more than three years old and satisfied.
• 75% to 80% LTV if the default is more recent (within the last 1-3 years) or unsatisfied.
• 50% to 70% LTV if you have multiple defaults or other adverse credit events.

Mortgage with Defaults Available for Borrowers

To get mortgage with defaults, we we work with a wide range of specialist lenders who are willing to consider applications from borrowers with defaults. Here are the most common mortgage types available:

1. Standard Residential Mortgages

Some high-street lenders may offer a residential mortgage if the default is over three years old, especially if it’s satisfied and your credit profile has improved since then. However, you may face higher interest rates and need a larger deposit (typically 20% or more).

2. Specialist Adverse Credit Mortgages

Specialist lenders focus on borrowers with adverse credit, including those with defaults. These lenders take a more flexible approach, considering the individual circumstances behind the default and your ability to make mortgage payments. These mortgages usually come with higher interest rates, but they provide a pathway to homeownership for those with poor credit.

3. Buy-to-Let Mortgages

If you’re looking for a buy-to-let mortgage and have defaults, your application will be assessed based on your property’s rental income potential and your overall credit history. Some specialist lenders are willing to offer buy-to-let mortgages to applicants with defaults, though they often require a higher deposit (20% to 40%).

4. Guarantor Mortgages

A guarantor mortgage can be an option if you’re struggling to get approved due to a default. With a guarantor mortgage, a family member or friend agrees to be responsible for the mortgage if you default, giving the lender additional security and improving your chances of approval.

Steps to Improve Your Mortgage Prospects with Defaults

If you have defaults on your credit file, there are several steps you can take to improve your chances of getting a mortgage:

1. Check your credit report: Obtain copies of your credit report from the main agencies (Experian, Equifax, and TransUnion) to understand what lenders see. Ensure all information is accurate and up-to-date.
2. Satisfy any outstanding defaults: If you can afford it, pay off any outstanding defaults and have them marked as “satisfied” on your credit file. This can improve your standing with lenders.
3. Save for a larger deposit: A larger deposit reduces the lender’s risk and increases your chances of approval, even with defaults on your record. Aim for at least 15% to 20% if possible.
4. Use a specialist broker: Working with a specialist mortgage broker like Goodnews Mortgages gives you access to lenders who may not be available on the high street. We can match you with the right lender and help you present your application in the best light.

Mortgage with Defaults? Goodnews Mortgages team can help

At Goodnews Mortgages, we understand that financial difficulties can happen to anyone. Our goal is to help you find the right mortgage with defaults by leveraging our network of specialist lenders and our expertise in adverse credit. Here’s how we can support you:

• Personalized advice: We’ll assess your unique situation, considering the age, type, and amount of your defaults, and recommend the best course of action.
• Access to specialist lenders: We have established relationships with lenders who cater to applicants with defaults, giving you more options and better chances of approval.
• Tailored mortgage solutions: Whether you’re looking for a residential mortgage, buy-to-let mortgage, or refinancing, we can help you secure a deal that suits your needs and budget.

Ready to Explore Your Mortgage Options?

If you have a default on your credit report and are looking for mortgage options, don’t be discouraged. Goodnews Mortgages is here to guide you every step of the way. Contact us today to speak with one of our expert mortgage advisors and discover how we can help you get back on the property ladder.

Email: hello@goodnewsmortgages.co.uk

Phone: +44 (0) 2477 360 268

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