Getting a Mortgage with Default on your Credit Report
Should I pay off my default to get a mortgage is a question I hear with regularity. I retort “No you should have paid it off in the first place!” – only joking – I appreciate it’s not that easy. Normally the registration of a default is because money was tight or a stance against what you believed was an injustice so why should you pay it – the trouble is now you want to move on and get a mortgage and you have this “default” hanging over your head.
In this article I lay out from a Mortgage Lender’s perspective how they will view a default and whether paying it off actually improves your chances of success in getting a mortgage on a property you are looking to live in.
There are a number of variables in what is a complex answer so I suggest you talk this through with a Professional Mortgage Broker, such as Niche Advice, before you attempt a mortgage application as the last thing you’d want is another unnecessary credit search against your blemished credit record.
A: I suggest you read all of the points covered below and speak to a professional Mortgage Broker, such as Niche Advice. Mainstream mortgage rates can be 1% to 5% cheaper so it’s an important to make the right decision.
A: Your default history will requested from central credit databases by the Mortgage Lenders. The databases that are typically referenced are Experian; Equifax and Transunion. There are transactional and IT development costs so it could be the individual Mortgage Lender only uses one agency either at the start of process (decision-in-principle stage) or for the whole application process.
You also have an obligation to notify the Mortgage Lender.
A: Not, necessarily. The source may only register “black marks” against you on certain credit agencies as they do not have the resources to keep multiple ones informed.
A: Basically any organisation that offers unsecured personal finance such as Banks, utility suppliers, credit and store card providers, loan companies, mail order etc.
In addition, there are Debt Collection Companies that buy defaulted debts from the financial organisations, they too will register the information with the credit agencies.
A: If the default is in the name of your Company it should not appear on your personal credit record and therefore should not pull through to your mortgage application.
Be aware Mortgage Lenders can run Company searches. And, if the Company is in financial trouble you should question whether this is the right time to take on a large debt such as a mortgage.
A: If your credit record shows outdated information default which is putting you at a disadvantage you should speak to the credit agencies. Here are some telephone numbers to help: Equifax T: 0800 014 2955. Experian T: 0800 013 8888. TransUnion T: 0113 388 4300.
A: I have seen many credit reports which show defaults on them even after the mandatory six year period has passed. In this instance I urge you to contact the agencies to see if this can be removed as every default will show you in a bad light.
A: As a general rule “High Street” Mortgage Lenders look at most closely at defaults registered in the last 3 years and want a clean credit record for at least 6 to 12 months before application, and for the default to be settled.
Here a “high level” appraisal of the guidelines (source Knowledgebank 11/3/23). This is only to help emphasise the stance ultimately every case is assessed individually; subject to credit score and level of deposit.
- Barclays three satisfied defaults up to a total of £200.
- Halifax no useful rules provided.
- HSBC no defaults accepted.
- Nationwide satisfied defaults up to a total of £250.
- NatWest no useful rules provided other than say no issues in last 6 months.
- Santander defaults up to a total of £300 none in the last year.
- TSB two defaults up to total of £500, £100 in the last year.
- Virgin no defaults accepted.
This list covers the “big boys” there are a group of mainstream lenders, typically regional building societies that can be slightly more tolerant.
A: As a general rule Specialist Mortgage Lenders are less concerned about defaults size or whether they have been settled. They typically want a gap before the default registration and mortgage application which pivots the amount of deposit needed and rate charged.
There are also certain Specialist Mortgage Lenders that ignore defaults for gas, water, electricity, phone and internet bills altogether.
- Kensington
– 1 default (£1,500 max) none in the last 6 months. 15% deposit needed.
– Any amount of defaults, none in the last 24 months. 10% deposit needed. - Pepper Money
– Any amount of defaults, none in the last 6 months. 20% deposit needed.
– Any amount of defaults, none in the last 12 months. 15% deposit needed. - Precise
– 5 defaults, none in the last 3 months. 20% deposit needed.
– 2 defaults (£1,500 max in last 12 months). 15% deposit needed. - The Mortgage Lender
– 4 defaults (1 in last 24 months). 20% deposit needed.
– 4 defaults (2 in last 24 months, 0 in last 6 months). 25% deposit needed. - Together
– Any amount defaults (none in the last 12 months). 25% deposit needed. - West One
– Any amount of satisfied defaults. 15% deposit needed.
Again, all cases should be fully talked through with a professional Mortgage Broker.
A: There are mortgage solutions available for missed payments, mortgage arrears, repossessions, debt management, arrangements to pay, discharged bankrupts, settled IVAs.
A: It is unlikely. You are probably looking at it being under £250 and settled 12 months before application.
A: Not normally unless there is a formal repayment schedule in place. That said, there is at least one Mortgage Lender that I know that makes an assumption on a “notional” monthly contribution in their affordability calculation to repay the default even if there is not a plan in place to do so.
A: You will need to check whether the Mortgage Lenders operate a “soft” credit search process at mortgage decision-in-principle stage – most of the main Mortgage Lenders do now! This means the outcome is only shared within the confides of the Mortgage Lender and their Group of Companies.
On full mortgage application a “hard” search will be conducted and this may impact your public record or rating.
A: Probably wise to unless the price is much better – in which case you should discuss the matter ahead of any application as this could be a straight decline on their lending policy.
A: It is very likely that this will be treated the same as fully unsettled.
The criteria used in this blog post is correct as of 11/03/2023. You may also be interested in reading our blog post on getting a Mortgage with Bad Credit
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