How to get a mortgage with late payments
When you apply for a mortgage you expect your credit record to be scrutinised, but are you aware of what impact certain events might have on the lender’s decision? When it comes to a missed or late payment for a loan, credit card or mortgage, for example, even if it was due to a genuine oversight, it shows up as an adverse event. There’s no distinction made between deliberate and accidental – so how will it affect you?
Since the credit crunch, lenders have tightened up their criteria considerably. Any missed or late payments are likely to have an impact on your credit score and what might seem like a minor issue to a borrower might carry much more weight for a lender.
Mortgage with late payment topics
Can I get a mortgage with late payments?
Although it may be trickier than if you had no late payments at all, the good news is that, with the proper research and knowing which lenders to talk to, getting a mortgage with a history of late payments on your credit records could be possible.
However, any acceptance of an application will very much depend on the level of arrears involved, and what they are in connection with. For example, late payments on your mortgage instalments – being a more significant amount of money and connected with your home – will likely have a greater negative impact with a lender than the far smaller late payments associated with your mobile phone bill. Lenders understand that, when a person is in financial trouble, their home will be the last thing they put at risk, so there could be greater troubles elsewhere.
Exactly when the late payments occurred will also be an attributing factor. If they are recent and still outstanding, then they will inevitably have more of an effect on a lender’s decision than if they are historic, say, more than two years old, and you have not had any more occurrences of late payments since.
All lenders, both those on the high street and the smaller, specialist lending companies will have their own criteria that they need applicants to fulfil. Some may view late payments as simply a fact of life that everyone might encounter occasionally, while others will take a far narrower view. In either case, it’s worth remembering that a lender will make a decision based on your total, complete circumstances and not solely the late payment history.
Your credit reports can often show up items that you would think of as unimportant, or so trivial that you have actually forgotten about. Late payments usually fall into this category, as they are often related to items that we regard as a day-to-day part of our lives, and most vital services are rarely withdrawn immediately if a bill is overdue.
Technically speaking, a late payment is one made after the due date has passed. If you are in the habit of waiting until you get the red bill for any services before paying, then you will be making late payments. One or more late payments will show on your credit report, and anyone scrutinising the record will see a figure ‘1’ next to them, indicating the money arrived one month late. A repeated string of late payments could be interpreted by a lender as a sign of an irresponsible approach to money management, and could put your chances of getting a mortgage at risk.
You’ll be relieved to know that paying a bill a couple of days late – or even a couple of weeks, in some instances – may not even show up on your credit report. However, despite this, it isn’t worth playing Russian roulette with your payments (and therefore your credit rating) and taking too relaxed an approach to your borrowing and cashflow. Always aim to make payments on time, and be sure to allow time for the payment to be received and processed as well – generally three working days are recommended – especially if you expect to apply for or renew your mortgage in the next few years!
The short answer is that yes, they can. Lenders use the information on your credit report to assess whether you appear to be able to manage your money, and a history of late payments is a red flag that suggests you might not pay your mortgage on time, either. That makes you a bigger risk, so even if the lender is still prepared to make an offer, they might request a bigger deposit or charge a higher rate of interest.
Even if you feel a late payment wasn’t your fault – say, for example, you paid your credit card bill late because you didn’t receive your usual statement – it will still have an adverse effect. Lenders take the view that it is your responsibility to pay your bills; you know you have that payment to make every month and if you don’t get your statement you should contact the lender or check your account online; not receiving the paperwork is not a free pass to avoid paying on time.
For How Long do Late Payments Affect Mortgage Chances?
Late payments will stay on your credit record for six years, so will potentially impact your chances of approval or the type of deal you might be offered for that length of time. Generally speaking, the longer ago the late payments happened, the less chance there is they will have a serious impact.
Late payments on a mortgage account are considered to be very serious indeed. When people are in difficulty, the mortgage is generally the last account to be left unpaid, so when that, too, falls by the wayside it indicates serious financial problems. Arguably if there are just one or two payments that were made up to one month late and these are four or more years ago they will have less impact than a string of missed payments that happened more recently, whether that’s because the mortgage was paid late every month for several months, or went unpaid for several months.
If you are now up-to-date with your mortgage but have previous missed payments showing on your credit record, then your chances of acceptance and the deal you are likely to be offered will hinge on your overall credit rating.
If you are currently behind on your mortgage payments, then your chances of being approved for a fresh mortgage deal are slim to none.
In either case, your best bet would be to get in touch with a specialist adviser and explore your options. Just Mortgage Brokers are able to offer free initial no obligation advice.
There are a number of steps you can take to help yourself when it comes to gaining approval for a mortgage.
1) Check Your Credit Report
The first step is to know where you stand, and the way to find that out is to get a copy of your credit report from each of the three UK credit reference agencies – Experian, Equifax and Callcredit. The reason it’s important to check all three and not just one is that they can hold different information, and you need to be able to see the full picture.
Next, check that your personal details are correct. If any details are incorrect, contact the agency and ask to have them amended.
If you are not on the electoral register then you should enrol, as this is an easy step that can make a big difference.
If you discover a missed payment that you were unaware of – for example, if you changed fuel supplier or mobile phone provider and a payment was missed along the way – bring that account up to date. It will still stay on your record for six years, but the fact that the account is paid looks much better than if it were not.
Finally, if any payments were made late or missed altogether due to reasons beyond your control – for example, you were in the hospital, suffered a bereavement, or your employer went bust – contact the agency or agencies concerned and ask if they are willing to add a note of correction to the file. That is something that may well play in your favour in future credit applications.
2) Build Up a Good Credit History
Make sure you always pay your bills on time. Mark dates in your diary, set up a reminder on your phone or, better yet, set payments up on Direct Debit.
3) Save Up a Good Deposit
The more missed or late payments you have on your credit record – and the more recently they occurred – the smaller the loan-to-value (LTV) ratio you are likely to be offered if accepted. The LTV is the amount of the purchase price of the property a lender is willing to offer and can range from 95% for people with exemplary credit down to 70% or less for those with bad credit. Clearly, the larger the deposit you are able to put down, the better your chances of acceptance.
4) Seek Specialist Advice
If you have a history of missed or late payments on your credit record and are applying to high street lenders, not only might you be turned down by them, but the fact they are conducting credit searches might make the problem worse.
That’s because when a potential lender conducts a search on your records, it leaves a trace, and a lot of searches in a short space of time can have an adverse impact in your credit score. (When you search on your own records to check for accuracy, there is no trace left. You can search your own records as often as you need to.)
– How old do my late/missed payments need to be before I am considered?
Late and missed payments stay on a person’s credit record for six years. When it comes to making a fresh credit application the older they are, the better.
If the case of more recent late or missed payments – say within the last couple of years – it’s not that you won’t be considered, necessarily, it’s more that you will have fewer options. The loan-to-value ratio offered is likely to be lower and the interest rate and fees higher. Provided your mortgage payments are currently up to date then your overall credit rating will likely be the deciding factor.
– I was 3 days late on a payment, is this classed as a missed payment?
Typically no, this will be classed as a late payment, as it was made after the due date had passed. If it is noted on your credit report, it will usually have the number ‘1’ next to it, indicating that the payment was made in the month after it was due. This could still apply even if you made the payment in the same calendar month that is was due.
The good news is that if you pay a bill a few days late it might not even show up on your credit report. To know for sure, request copies of your report from the UK’s three main credit reference agencies, Experian, Equifax and Callcredit.
– I’m currently in an arrangement with my current mortgage, can I get another mortgage?
The odds are stacked against you in these circumstances. If you are in an arrangement, then you are probably paying less each month than the mortgage was initially arranged for. This is likely to have an ongoing adverse impact on your credit rating. Also, if you can’t afford your existing mortgage, you’ll have difficulty proving you can afford another one.
Your best bet would be to get back on track with your current mortgage and also take steps to repair your credit rating.
Having said that, everyone’s circumstances are different and there are specialist lenders who evaluate each case on its own merits. At Just Mortgage Brokers, we have an experienced bad credit team that can help; get in touch today for free initial advice and no-obligation quotes.
– Do late payments affect credit score?
Potentially late payments could affect a credit score, but how much they affect a score can depend on the amount and timescales of the late payments. If possible, look to bring any late payments up to date as soon as possible as this should help improve a credit score.
– How long do late payments affect credit score?
How long late payments can affect your credit score can depend on many factors including the timescales and the number of late payments that have been registered. A credit score is nevertheless determined in varying ways by different companies, so it may affect one provider’s credit score more than another, resulting in differences in their ability to approve a possible mortgage or loan.