Mortgages with Defaults Settled and Unsettled
Following the credit crunch in 2008, mortgage lenders were forced to tighten up their lending criteria. The result was that it became more challenging for people with defaults on their credit file to get accepted for a mortgage.
Over a decade later, there are still many high street lenders who are unwilling to lend to people with a history of bad credit – even if the defaults have been settled.
Can I get a mortgage with defaults?
Being realistic, if you have unsettled defaults on your credit history then it will probably be harder to find a lender offering unsettled default mortgages. It may be considerably easier if those defaults have been settled.
However, more difficult does not mean impossible. There are two factors that might work in your favour with all types of default:
• lenders don’t apply a single universal set of lending policies;
Some may be much more tolerant of various forms of credit history problems than others and they might offer mortgages with defaults – settled and unsettled;
• secondly, what we call bad credit histories reside in the databases of three main UK agencies – namely Experian, Equifax and CallCredit (now Trans Union). Some bankruptcy details are also recorded on the Hunter Register.
That matters because although theoretically, the credit reference agencies should share information, they don’t always do so. The result is that it is perfectly possible for one to have a more or less favourable view of a mortgage applicant than another.
Depending on which agency they use, different mortgage lenders may see very different pictures of your credit risk issues.
How much can I borrow if I have defaults?
Mortgage lending is related, in part, to the degree of risk the lender perceives to be involved.
Applying for mortgages with defaults settled and unsettled on your history files will typically mean that lenders will perceive you to be a higher lending risk than if those defaults had not existed.
Quantifying this is difficult because judgement calls by individual lenders are involved. The impact is likely to be manifest in one or both of the following areas:
• the amount you’ll pay for your mortgage in terms of interest rate;
• lower LTV (Loan-To-Value) lender advances. The lower the LTV, the higher the deposit you’ll be asked to find.
Apart from those considerations, the amount you can borrow will be driven by your income (plus your partner’s if you are getting a joint mortgage) and overall financial position, plus the valuation of the property concerned.
How can I improve my chances of getting accepted for a mortgage when I have defaults?
Each individual case would need to be evaluated on its specific details.
• find a larger deposit. That reduces the lender’s risks and also communicates to them that you have financial reserves;
• clear any unsettled debts on your credit history files;
• be sure that you are on the electoral roll. This enables a potential lender to quickly and easily verify your address;
• check to make sure that your information held by the credit scoring agencies is up to date. They will all have a straightforward process for doing so;
• try to position yourself to demonstrate that you have regular and predictable (or for the self-employed, certified) income;
• don’t make lots of mortgage applications to a wide range of potential lenders in the vague hope of success. If they’re refused, that could further impact your credit history files.
If I satisfy my unsettled debts, will it be easier to get a mortgage?
Settling defaults although important, won’t have an immediate impact on your credit history files.
However, doing so means potential lenders will see you are behaving in a financially responsible fashion. That may help.
Types of defaults and how they can affect getting a mortgage
Not all defaults are the same.
Some may be classed as relatively minor. Others, such as not paying off a loan, will be likely to have a much more serious effect on the perceptions of a potential mortgage lender. The interpretation of defaults also varies by lender.
You need to make your application to a lender who will be likely to be receptive to your unique circumstances and background. Applying to lenders who may not be, will be both a waste of time and potentially make it more difficult for you to secure mortgages elsewhere.
It would be wise to discuss your unique circumstances with an expert and get help in identifying suitable lenders.
Remember, not all defaults on your records are necessarily one-sided. It may be that one exists because you were in dispute with the provider and in your view, were justified in not paying.
In those circumstances, you should write to the three main UK credit providing services and ask them to append a letter with your side of the story to your files (often called a ‘Notice of correction’). They are legally obliged to do so.
What about old payday loans defaults?
Using payday loans and subsequently defaulting on them, is likely to be an issue for many mortgage lenders.
A lot will depend upon how recent the issue was and how regularly you are/were using payday loan services.
In itself, a default on a payday loan will not necessarily stop you securing a mortgage, but it will be another factor taken into overall consideration by a potential lender.
What types of mortgage can I get with satisfied and not satisfied debts?
There are no particular restrictions here.
Getting a mortgage with a default may be possible for owner-occupier, buy-to-let or remortgage applicants.
Next steps – mortgages with defaults settled and unsettled
There’s no doubt that having defaults on your history files is going to mean that your application will need to be carefully managed if it is to stand a chance of success.
We can’t stress strongly enough how important it is to get your approach right from the outset and not simply to make as many applications as you can.