Getting your first mortgage, or even remortgaging can be a nerve-wracking time, especially with the emphasis we put on our credit file to help us through. It’s quite common, with life’s challenges and unexpected expenses, to miss payments from time to time, however, when these missed payments become more regular or you fail to pay an agreed amount over a certain period, this is where significant financial difficulties come in.
One financial difficulty that can affect the mortgage approval process, is defaulted payments. Let’s look at what these are, how they can affect your mortgage application, and what can be done about them.
What are Defaulted Payments?
Defaulting on payments means failing to meet the agreed-upon terms of a loan or credit agreement which can happen for various reasons such as job loss, unexpected medical expenses, or simply financial mismanagement. However, continuous defaulted payments can significantly impact your credit score and financial standing, making it challenging to secure new lines of credit, including mortgages.
After around 3 to 6 months of missed payments, creditors will begin sending default notices, which is a formal notification stating that the borrower has failed to pay and that they are in breach of their agreement. The notice should outline a time period the borrower has to bring their account up to date and avoid further action, however, if this is not possible then the creditor may issue a CCJ (County Court Judgement) or initiate legal proceedings to redeem their money.
How do Defaulted Payments Affect Mortgages?
It’s important to understand when it comes to getting a mortgage with a defaulted payment, lenders will most definitely take note and want as much information as possible, as this poses a risk in lending their money to you. This means that getting a mortgage with defaulted payments in most cases is going to be harder than those who don’t have one. The 2 main aspects of mortgage application that defaulted payments affect are:
- Credit Report – defaulted payments will decrease your credit score, and when it comes to mortgages, lenders want to see how high your credit score is. They will want to understand the amount of the default and the date it was obtained, your current financial situation, and how many times they occurred.
- Credit File – a defaulted payment typically stays on the credit file for 6 years from the date it was issued in the UK, which means that in these 6 years, whichever type of credit you apply for, lenders will be able to see your default and use it to determine your trustworthiness. After 6 years, it may still be visible to lenders, however, it won’t be factored into the borrower’s credit score or affect their ability to obtain credit.
Is it Possible to Get a Mortgage with Defaulted Payments?
Although difficult, it is still possible to get a mortgage with defaulted payments. Most lenders willing to take on customers with defaulted payments will most importantly want to see how you are taking steps to address the situation and gain back financial security. To improve your chances, you will need to understand the specifics of your credit file and the defaults listed, and you may need to work with a debt management company or financial advisor. From here you may be able to start looking for lenders who specialise in bad credit mortgages or those willing to consider borrowers with less-than-perfect credit scores. A
mortgage advisor can help if you find yourself in this position.
Type, Size, and Balance
There is a scale of very serious to less serious payment defaults, and this scale is considered by lenders when taking on new customers. Some less serious payment defaults include:
- Utility bills.
- Credit card payments.
- Mobile phone contracts.
These types of defaults are seen as less serious as they are smaller, less significant sums of money, compared to the more serious types of default payments, which include:
- Car finance.
- Mortgage payments.
- Personal loans.
- Lease agreements.
- Secured loans.
These types of default pose a risk of repossession, which creates a more serious issue if payments are missed. They also hold a higher value of money, meaning that the size of the default increases and could indicate to lenders that you are a risk when it comes to your mortgage. The age of the default is also taken into account, whether or not it has been settled or if it is still active, as well as any other financial commitments you have.
Satisfied Default
This term describes a previous defaulted payment that is recorded on an individual’s credit file but has been repaid and the account settled in full. This term is generally viewed more favourably as it shows a lender you have taken steps to pay the money owed.
How to go About Getting a Mortgage with Defaulted Payments
It’s natural to worry about getting a mortgage if you have defaulted payments, but there are lenders out there willing to take on borrowers in these situations, and there are steps you can take to regain the trust of these lenders:
- Assess Your Finances – take stock of your income, expenses, and outstanding debts, understanding where you stand financially will help determine the type of mortgage you can afford and demonstrate to lenders, that you’re taking proactive steps to manage your finances responsibly.
- Improve Your Credit Score - while defaulted payments have a negative impact on your credit score, you can start to improve it by obtaining a copy of your credit report and reviewing it for errors, paying off any outstanding debts and even using a credit repair service that specialise in credit improvement.
- Save for a Larger Deposit - this can offset the impact of defaulted payments and lenders often view a sizable deposit as a sign of financial stability, in turn reducing the lender's perceived risk and improving your chances of mortgage approval.
- Be Transparent - being honest about your financial history, including any defaulted payments can help toward gaining a trusting relationship with a lender, as they may be more willing to work with you if they see a genuine effort to rectify past issues.
- Seek Professional Guidance – mortgage approval with defaulted payments is tricky and complex so seeking guidance from an independent mortgage broker in Manchester, who offers personalised advice and can guide you through from start to finish is highly advisable.
Chat About Your Options in Confidence with an Independent Mortgage Advisor in Manchester
Taylormade is a dedicated, professional,
independent mortgage broker in Manchester who can offer friendly and helpful advice when you need it most. We understand how overwhelming it can feel to be affected by defaulted payments within the mortgage approval process, but we are here to help. We are a team of trusted mortgage advisors who can find the best solution for your circumstances as well as offer the best mortgage rates on the market today.
