Whilst you’re planning to make a mortgage application, you need to understand how your past financial situation might impact your chances of a successful application, as well as how you can work around any previous financial troubles when applying.
We’ve already been through how gambling can affect a mortgage application, and how an overdraft will affect your mortgage application. In this blog, we’re going to look at defaults.
If you’re worried about how a default might affect your mortgage application, read on to discover how you’ll be impacted, and how you can still succeed with a mortgage application.
What classes as a default?
A default refers to a failure to fulfil a financial obligation. This typically means you’ve failed to make a debt payment according to terms you agreed on. This may be for a personal loan, a credit card, or a previous mortgage.
A default can significantly lower your credit score, especially if it was particularly recent or for a large sum of money, meaning that it will likely affect your mortgage application.
Will mortgage lenders see if you have had a default?
Yes, mortgage lenders are able to see if you have had a default if it was in the previous 6 years, as it will be featured on your credit report. How this impacts your application may depend on the specific lender, whether or not the default was paid off (satisfied or unsatisfied), and how long ago the default was.
Speaking to a mortgage advisor can significantly help you to understand your options if you have a recent default but still want to acquire a mortgage, so get in touch today.
Are some defaults more severe than others in terms of getting a mortgage?
Some defaults are more severe than others in terms of how they’ll affect your chances of getting a mortgage. The following are factors which affect the severity of a default:
- Default type – Defaulting on a secured loan, such as a previous mortgage or a second charge, are regarded as more severe than those on credit cards or personal loans for example.
- Date of default – More recent defaults will be seen by lenders as more of a red flag than those further in the past, especially if they’ve still not been paid off.
- Value – Defaults involving more money are generally regarded as more serious and risky than lower value ones.
- Satisfied vs unsatisfied – Defaults which were eventually paid (satisfied) will be viewed more leniently than those which weren’t satisfied.
How long does a default stay on your credit file?
A default typically stays on your credit file for a period of six years starting from when it was first recorded. This remains the same even if you pay it off, although you do have the right to appeal an inaccurate default if you feel you have grounds to do so. Find out more about how mortgage credit checks work.
Can you get a mortgage if you have had a default?
Yes, you can get a mortgage if you have had a default, but it will be harder, and typically requires the input and expertise of a specialist broker or financial adviser.
Factors such as:
- The age of the default;
- Whether it’s been satisfied;
- The value and type of the default, and;
- Your overall credit history
… will be crucial in determining how badly it may impact your claim.
Working with a financial adviser helps you to optimise your application by improving your credit score in other ways, and understanding how to format an open and honest mortgage application which explains any blips on your financial record.
Does the timing of a default affect the impact on getting a mortgage?
Yes, the timing of a default directly impacts your chances of getting a mortgage. If the default was more recent, particularly in the last couple of years, lenders will view you as much higher risk.
If the default was longer ago, for example four or more years ago, and you’ve maintained a good credit history since, your application should not be badly affected.
How to improve your chances of getting a mortgage with a default
Improving your chances of getting a mortgage with a default involves being proactive and increasing your credit score. It’s also important to be open and honest with potential lenders about what caused your poor prior financial situation, and how you can be confident that your future finances will be managed better.
Essentially, lenders don’t want to lend you money if they think there’s a chance you won’t be able to pay it back, so building trust and proving a better financial situation is key. Doing this alone, however, is tricky. Working with a trusted local financial advisor is the best way to understand exactly what factors impact your application, as well as having industry/lender specific insight into what specific lenders prioritise.
Get in touch with Barlow Irvin today to get started.