Mortgages with defaults are usually classed as bad credit Mortgages. Getting a mortgage with a 5-year-old default will depend on how big the defaults were and if they were settled or not.
Most mortgage lenders will not lend to people with current defaults which are registered on their credit file but there are some specialist mortgage lenders who will accept defaults and there will likely be more mortgage lenders willing to give you a mortgage with a 5-year-old default.
You will usually have a default registered on your credit file after a few months of missed payments and warnings from the creditor to bring your account up to date.
A default on your credit file will show how much you owe, to who and how long the default has been registered on your credit file. The default will usually be removed from your credit file after 6 years.
How will a 5-year-old default affect my mortgage?
If you are applying for a new mortgage or looking to remortgage then a 5-year-old default may affect your mortgage but most lenders will look at defaults on a case by case basis.
If the default is on a secured loan or is a mortgage repayment default then this may hold more significance than if it is an unsecured loan default.
The type of account you defaulted on will also be relevant.
If you defaulted on a:
- Credit card
- Mobile phone
- Unsecured loan
- Store card
Then the mortgage lender may view these as important but not as important as a secured loan or mortgage default.
If the default has been 5 years or more than 5 years old then most mortgage lenders will consider it based on:
- the total amount you defaulted by
- if you defaulted to many lenders
- If you settled the default at any time within the 5 years
- Your repayment history since the default
A bad credit mortgage broker may then be able to find you non-high street mortgage lenders who specialise in lending to people with bad credit.
How soon after a default can I get a mortgage?
Most mortgage lenders may consider a mortgage offer months after you have had a default but 12 months will usually be a sufficient amount of time but you should at least have settled the default or you will likely have to pay an increased mortgage deposit and reduce the Mortgage lenders risky by reducing their loan to value (LTV)
How will a mortgage lender access your affordability with a 5-year-old default?
Mortgage lenders will always assess your mortgage affordability in the same way.
This means they will look at the property you want to buy, analyze your income, analyze your credit report and then look at your mortgage deposit to see if this fits with their lending criteria
- The property: Mortgage lenders will consider the property type. Some mortgage lenders may not lend on properties built on anything other than bricks and steel.
- Your Income: mortgage lenders usually lend on an income multiple, this could be between 3 and 5.5 depending on the mortgage lender.
- Your credit history: mortgage lenders, of course, like people with good clean credit histories but that isn’t all of us but the good news is that you can still get a mortgage with a default, a county court judgement, an Individual voluntary agreement and even a mortgage with a debt management plan.
- Your mortgage deposit: Your mortgage deposit will affect if you can get a mortgage or not. Most mortgage lenders will require a minimum 5 % mortgage deposit but don’t worry if you don’t have this as you may be able to get a family springboard mortgage such as the Barclays family springboard mortgage, the lloyds lend a hand mortgage or thebpost office family link mortgage.
If you still can’t get any of these mortgages you may be able to get one of the home buying government schemes below.
- 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.
Be aware that some of these home buying government schemes above may not accept people with bad credit but it is always worth checking directly with them as their definition of bad credit isn’t very clear.
This means if you have a 5-year default there is a chance you may be able to get help with your mortgage deposit.
What is a default notice and how could it affect your ability to get a mortgage?
A default notice is a formal letter sent to you by the company who you are in default to. The default notice will usually be sent after 3 to 6 months of you being in arrears and receiving warning letters to bring your account up to date by clearing any outstanding balance.
A default notice will be sent to you as a legal requirement but it doesn’t necessarily mean the creditor has begun any legal proceedings against you except they explicitly warn you of such. Legal proceedings could be repossession orders, county court judgements etc
To issue a default notice, the company issuing the notice will need to have the debt regulated by the consumer credit act.
The default notice will contain information such as:
- The agreement terms you have broken
- The current balance you owe
- The date the balance should be paid by
- The consequences of not paying the debt by that date
- How long you have to respond to the creditor from when you receive the default notice (This is usually 14 days)
The default notice may also inform you of what action the creditor could take if you do not pay the balance in full or get in touch with them within 14 days.
This could include:
- Closing your account and demanding the full account balance, not just the overdue amount
- Starting court proceedings such as a county court judgement, a home repossesion or an attachment of earnings order.
- Passing the debt to a debt collection agency
When you receive a default notice you should respond to it as ignoring it could only help to worsen the situation and may even put you in bigger debt.
If you can pay the balance or arrange a repayment plan with the creditor then you should do this so they can at least freeze the balance you ower and not add any extra charges onto it.
If you are able to repay the overdue balance within the timeframe set out in the default notice, you can ask to have the default removed from your credit report.
If this is you then get a copy of your credit report from the three main credit reference agencies:
You should do this to ensure the default has been removed from all your credit files.to make sure it has been removed.
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.