Getting a mortgage with a default

A default occurs when you have missed, or haven’t paid in full, several payments to the same creditor. The creditor closes your account to prevent further borrowing and adds a mark to your credit report. In turn, this will negatively impact your credit rating.

A default notice is a formal letter sent to you if debt is regulated by the Consumer Credit Act. Sending the letter is a legal requirement, it doesn’t mean that legal action has begun.

The creditor does not have to send a notice if the debt is not regulated by the Consumer Credit Act. However, it will still affect your credit report.

A default will last 6 years on your credit file from the date of registration^[1]A collection agency may add another default to your credit file if they buy your debt. This happens when the collection agency takes over the debt, resulting in two defaults on your report.

The collection agency will re-register the first default as “satisfied” and then register a new default as “debt assigned”. This tells anyone checking your report what has happened.

The expiration date remains the same. It stays on your report for 6 years from the first entry, and then both entries should be deleted.

If you get a default notice the creditor can:

• Demand the full outstanding balance (not just the overdue amount).
• Pass the debt to a collection agency.
• Start court action.
• Start proceedings to repossess assets that form part of the agreement (a car or property).

If you can afford to bring the account up to date, you should. If you can pay the late balance on time, you can request to remove the default from your credit report.

You can check your credit report with any of the three main credit reference agencies, Experian, Equifax or TransUnion.

If you are unable to pay your debt, reach out to the person you owe money to. Try to come to an agreement on a repayment plan for the amount you owe.

If you have deliberately withheld payment because of a dispute, make sure the creditor’s accounts department are aware. It is better to get in touch with them at this stage than if they commence legal proceedings against you.

If a default has been registered correctly this will remain on your credit file for 6 years. This is even if you have paid it off in full. However, if it has been registered in error you can request its removal.

To do so you will need to contact the company that has registered the default or the credit reference agencies where it is recorded. Ensure you have evidence to hand that you can provide where required. Items such as proof of payment, bank statements, identification and proof of address.

If they agency is satisfied with this evidence, they will then remove the default from your credit file.

If you fall into arrears on an account, the lender will close it and a default will be registered. As well as the missed payments showing on your credit report, the default will also show.

A default notice will set out how much you owe and when you need to pay it. If you can pay, you should do so when you receive the notice.

You can request to remove the negative mark from your credit history if you pay the amount you owe on time. However, the late payments will remain on file.

Contact your creditor if you are unable to make a payment. It’s possible you will be able to arrange to make smaller regular payments to clear the debt.

If you can’t pay, talk to your creditor and make repayment arrangements. Also, check your credit report for any problems.

If you see the same default twice on your credit report, it means the debt was sold to a collection agency. If this happens, then the first default should be marked as “satisfied”. The debt collector will re-register the default, but it should be flagged as “debt assigned”. Anyone checking your report will then understand that your debt has been sold on.

The default on your credit report will stay for 6 years from the first entry, even if it is entered again. After that, both entries should be removed.

If a lender is willing to offer a mortgage with a default, how much they offer will depend on your ability to repay. A mortgage affordability assessment looks at your income versus your outgoings.

If you have good credit, you can usually borrow up to five times your income. Lenders will always take your affordability into consideration.

If you have defaults and other financial commitments, you will probably be able to borrow less money. You might also be expected to put down a bigger deposit.

Often, it depends on when the default occurred and how much risk the lender thinks they are taking.

Try our mortgage affordability calculator