Getting a mortgage with a default
In this brief guide, we are going to discuss getting a mortgage with a default.
Getting a mortgage with a default
Getting a mortgage with a default is very much possible but this will depend on the type of default, how long ago the default was and what your credit behaviour since the default has been like.
What is a default?
A default is what happens when a credit provider tries numerously to bring your account up to date but you fail to do so.
This means you will have missed several repayments and ignored several reminders to make those payments.
You will receive a default notice from a credit provider once your account is in arrears but only if the debt is regulated by the consumer credit act. The default notice is a letter which is a legal requirement when issuing a default.
A default doesn’t mean that any legal action has begun but simply if the debt is regulated by a consumer credit act then the creditor must send you a default notice.
If the debt is not regulated by the consumer credit act then there is no need for the creditor to send you a default notice.
A default will stay on your credit file for 6 years after it has been registered.
A default on your credit file will make it much harder for you to get credit in the future but it is still possible to get a mortgage with a default with a bad credit mortgage lender.
What is a default notice?
A default notice is a formal letter which a creditor must send to you before they put your account in default. A creditor will only have to send you a default notice if the credit is regulated by the consumer credit act.
A default notice must usually be sent after 3 to 6 monthly payments have been missed and the account is now in arrears.
Although a default notice is a legal requirement it does not indicate that any legal action has commenced.
What does a default notice include?
- A default notice will usually state how much you can pay to bring your account up to date
- A default notice will state the terms you broke
- It will also state the latest date by which the payments should be made
- It would also state what will happen if you fail to comply with the notice
- The default notice will also state how long you have to respond to the notice. This is usually 14 days
What can happen after you have been issued with a default notice?
There are a few things which can happen once you have been issued with a default notice, they include:
- The creditor can start court proceedings
- The creditor can sell the debt to a debt collection agency
- The creditor can demand the full outstanding balance and not just a minimum payment or any amount which may bring the account up to date
- The creditor can start repossession proceedings to repossess any assets which the credit was attached to e.g a car for a car finance agreement or a house for a mortgage.
What you should do when you receive a default notice?
Once you have received a default notice you should do your best to respond to it within the given time.
You should not throw away the letter or simply disregard it as things can quickly escalate.
In most cases, if you are able to bring the account up to date in the time stated on the credit file then the default notice can be removed from your credit file. You will have to ask the creditor to do this.
If you are in this basket then you may want to check that the default notice has indeed been removed from all your credit reports.
You can request a statutory credit report from the four credit bureaus in the UK: Equifax, Experian, Transunion and Crediva.
If you cannot clear the balance then you may still be able to come to an agreement with the creditor on how to repay what is owed. If you are not making any repayments due to an ongoing dispute then you should make sure that the creditor is aware of this.
Responding and trying to negotiate with the creditor will be a much easier thing to do than trying to recover when things get much worse.
Example: a CCJ being placed on your credit file could mean that you end up having your goods repossessed from your property.
Are all defaults the same?
No, not all defaults are the same and getting a mortgage with a default will depend on what type of default you have.
The table below gives you a guide on how serious each default is:
|Default||Level of severity|
Getting a mortgage with a default
Getting a mortgage with a default is very much possible with a bad credit mortgage lender but you may also need the specialist services of a bad credit mortgage broker.
Having a default on your credit file will simply get you rejected by most high street mortgage lenders but there are a variety of bad credit mortgage lenders who may be willing to lend to you as defaults are not seen as bad as bankruptcies or individual voluntary arrangements.
Although getting a mortgage with a default from a high street mortgage lender is possible based on the mortgage lenders criteria and your personal circumstances you will usually need to have some specialist knowledge of the bad credit mortgage market in order for you to get a mortgage offer with a default.
Getting a mortgage with a default will really leave you in the part of the mortgage market where there are not too many mortgage lenders and hence the mortgage rates are not competitive.
You can also expect to put down a much bigger mortgage deposit than someone who has a good credit report.
A bad credit mortgage broker may be very valuable in helping you get a mortgage with a default.
In any case, before you start looking to get a mortgage with a default you should spend time building up your mortgage deposit and trying to rebuild your credit score and history.
How long after a default can you get a mortgage?
As with most things in the bad credit mortgage market, the older they are the less relevant they will be. You will usually need to wait for 12 months before you are able to get a mortgage after you have received a default notice.
The table below gives you a idea of the term you can expect for a mortgage with a default based on the time since the default.
|Time since default notice||Max LTV available|
|In the last 12 months||75%|
|Between 12 & 24 months||85%|
|Between 24-36 months||90%|
Defaults will stay on your credit file for as long as 6 years and within that time you may find getting a mortgage much harder and with mortgage rates which are not competitive.
Can you get a mortgage if your default is satisfied?
Having a satisfied default will certainly make it much easier to get a mortgage but it doesn’t necessarily mean it is the best thing to do as most mortgage lenders are more concerned about how old the default is that if it was satisfied or not.
You should remember that even after the default is satisfied it will still be mentioned on your credit file for 6 years since the default was registered and this may make it much harder for you to get a mortgage.
Can you get a mortgage once the default has been removed?
Yes, once the default has been removed from your credit file( as 6 years has passed or by getting the creditor to remove it) you will find it much easier to get a mortgage but your credit score may still be low and may need to be built up again.
Mortgage lenders may still ask you if yu have ever had a default and you should be answering truthfully. This may still change your mortgage affordability even if the default has been removed from your credit file.
That being said, you can still get a mortgage with a default on your credit file so do not be overwhelmed if you have a default and are considering getting a mortgage.
There are a variety of bad credit mortgage lenders who may be willing to provide you with a mortgage offer with a default on your credit file.
If you can put up a sizeable mortgage deposit and your credit behaviour since the default is on an upward stride then getting a mortgage with a default may be possible.
What is the maximum you can borrow with a default?
The amount you may be able to borrow will be decided by the mortgage lender on a case by case basis.
Using an income multiple to determine what you may be able to borrow on a mortgage with a default would be a waste of time as each mortgage lender will take you through their mortgage affordability assessments and carry out checks on the number of debts you currently have, your monthly income and how much of it is disposable, your current job and how reliable they fell your income is, your mortgage deposit and the type of property you are buying (e.g non-standard construction property.
The mortgage lender will then let you know what the maximum they can lend to you is based on their risk exposure.
In some cases, this may be less than you are looking to borrow and you won’t be able to get a mortgage if you cannot find the extra mortgage deposit.
You may be able to get a guarantor mortgage to reduce the risk to the mortgage lender or see if you can increase your mortgage deposit bu borrowing money from your family. In this case, you may need a gifted deposit letter which most mortgage lenders now have their own templates for.
You may also be able to use a government scheme but some of the government scheme providers may not offer assistance to those with bad credit and it is likely you will miss out on any government help but you can still give it a try as applying to government schemes should not affect your credit report with hard searches.
Make sure to inquire with the government scheme provider on if they run a hard credit search before you apply to them to see if you are eligible for their scheme.
On the other hand, if you had a clean credit score you may be able to get a mortgage that is up to 5 times your income.
Government schemes you may miss out on
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
What loan to value rates can I get on a mortgage with a default?
The loan to value rates you may be able to get on a mortgage with a default will usually range from 85% and below but this s completely dependant on how long ago the default was.
You will usually need to put a mich bigger mortgage deposit down due to the risk posed to the mortgage lender.
On the other hand if you had good credit you could expect a much higher loan to value rates and smaller mortgage deposit requirements.
How much mortgage deposit will I need for a mortgage with a default?
When getting a mortgage with a default you can expect t put down a mortgage deposit of as much as 15% but in some cases as high as 30% based on how long ago the default occurred.
On the other hand, if you had a good credit record you may be asked to puta mortgage deposit of 5% and could even benefit from some of the government schemes listed above.
Getting a mortgage with more than one default?
If you have more than one default then you may find it much harder to get a mortgage. If you then have other bad credit issues as well as the default then getting a mortgage becomes even that much harder but it all depends on when these bad credit issues are and how long ago they occurred.
For example, a bankruptcy or home repossession will be looked at much more seriously than if you had a missed credit payment or a late payment.
If your bad credit issues are on unsecured debts then the mortgage lender may take a more relaxed view whilst if your bad credit issues were on secured debts the mortgage lender will take this very seriously.
As mentioned above the time these bad credit issues occurred is also very important.
Issues which occurred within 12 months will almost certainly rule you out of a mortgage but those which occurred more than 12 months ago will be considered. If the issues are at least 36 months then your chances of getting a mortgage with a default increase slightly.
Can you remortgage with a default?
Yes, you may be able to remortgage with a default but typically this will depend on how much equity you have in the property, the age of the default and your credit behaviour since the default.
You may also be able to remortgage with more than one default but as mentioned at the beginning of this guide defaults are a specialist area of the mortgage market and a bad credit mortgage broker may be best placed in assisting you.
Mortgage lenders that accept defaults
There are various mortgage lenders that accept defaults but mortgage lender criteria change ever so often and listing the mortgage lenders here will not be a great idea as they may have changed by the time you are reading this guide.
If you have a default and you are thinking of getting a mortgage with a default then you should contact a bad credit mortgage broker who may be able to help you look at your mortgage options and decide which mortgage lenders are suitable to approach for a mortgage in principle and then a mortgage offer.
How to get a mortgage with a default
To get a mortgage with default you should follow these steps:
Check your credit score
If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.
Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.
Alternatively, you can also use credit score services such as Checkmyfile and clearscore to check your credit report.
By checking your credit score you will know how old the default is? if there is more than one default and the values of the default.
Build your credit score
The next step you can take when looking to get a mortgage with a default is to build your credit score and history as this will improve your chances of getting a mortgage with a default.
A few steps you can take to achieve this include:
Get on the electoral roll
Get a credit builder card, a credit builder loan or a secured credit card to show good credit behaviour
Avoid missing credit repayments
Avoid having late credit repayments
Keep your credit utilisation below 30%
Keep your credit accounts open for as long as possible
Avoid making too many credit applications in a short space of time
Avoid getting rejected for credit
Get a bad credit mortgage broker
The final step to getting a mortgage with a default is to consider getting a bad credit mortgage broker. This area of the mortgage market can be very difficult to navigate and a bad credit mortgage broker may hag ethe experience of which mortgage lenders may be willing to accept you based on your circumstances.
A bad credit mortgage calculator will give you an idea of what your mortgage repayments may look like but it won’t let you know if you will be accepted for a mortgage at all.
Use a bad credit mortgage broker
You may want to consider using an independent bad credit mortgage broker to get a mortgage.
Bad credit mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.
A bad credit mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer. Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
FAQs: getting a mortgage with a default
Can I get a mortgage with a default?
Yes, you can get a mortgage with a default but this will depend on how long ago the default was registered, how many defaults you have and your credit history since the default was registered.
Are there mortgage lenders who accept defaults?
Yes, there are mortgage lenders who accept defaults but they will usually look at each applicant on a case by case basis rather than having one criterion for all mortgage applicants.
How bad is a default on your credit history?
A default on your credit history can severely limit you from being able to access credit in the future but this is dependant on how old the default is and what type of credit you are after.
Most lenders will also look into your personal circumstances at the time of the default and how they have changed until now.
How bad is a default?
A default can be viewed as really bad due to the fact that it severely limits your ability to get credit in the future.
That being said, most lenders will consider you and review your case but usually, only bad credit lenders will go through this effort and most lenders who lend below £25,000 simply use automated decision making rather than manual underwriting.
This means you may struggle to get more high street lenders when looking for credit and will have to result to more specialist bad credit lenders.
Can you get a default removed?
Once a default has been registered on your credit file it won’t be removed except it has been placed there in error. A default will stay on your credit file for 6 years but satisfying it may make the effect of the default lessen.
Do I need to satisfy my defaults before I can have a mortgage?
No, you do not need to satisfy your defaults before you can have a mortgage Many mortgage lenders will pay more attention to how old the default is rather than if it has been satisfied or not.
It depends on which mortgage lenders you approach, high street mortgage lenders may insist on the default being satisfied but specialist bad credit mortgage lenders will not.
The mortgage lender will also want to see what you have done with your credit history since the point the default was registered. If your credit history has slowly risen then this may be a very good sign.
How long does a default stay on my credit file?
A default will stay on your credit file for as long as 6 years but you should be aware that although a default cannot be reissued on your credit file by the same party, the debt can simply be sold to another party who may issue a default at any point within the 6 years or after
What is the maximum size default you can get a mortgage with?
You will usually be able to get a mortgage if the default is less than £1500 and the default is less than a year old. If the default is more than a year old then most mortgage lenders do not care about the size.
In regards to the number of defaults, a mortgage lender may accept: most mortgage lenders will accept any amount of defaults after 24 months have passed ht within 24 months since the defaults were registered they may only accept a maximum of two defaults
How do you pay off your default?
You can pay off your default by contacting the creditor. If you can not pay the full amount requested then you may be able to negotiate some settlement with the creditor rather than risk things getting worse.
Why do you have the same default on your credit file twice?
“If the same default shows twice on your credit report, it is an indication that the debt has been sold on to a debt collection agency. If this happens, then the first default should be marked as “satisfied”. The debt collector will re-register the default, but it should be flagged as “debt assigned”. This tells anyone checking your report what has happened.
Even though the default is entered on your credit report a second time, the date it expires will not change; it stays on your report for six years from the initial entry, at which point both the entries should be removed.”
Can I get a Halifax mortgage with a default?
Getting a Halifax mortgage with a default may be hard as most mortgage lenders prefer to lend to borrowers who do not have defaults but rather have good credit scores.
You may still be able to get a Halifax mortgage with a default but this will be based on the lending criteria for the Halifax mortgage product you are after.
As it is impossible to know what Halifax mortgage product you are after it is best to assess if you are able to get a Halifax mortgage with default as and when you are ready to get your mortgage with a mortgage broker.
In this brief guide, we discussed getting a mortgage with a default.
If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.