– Do I need to satisfy my defaults before I can have a mortgage?
Generally speaking, satisfying a default will boost your chances of being accepted for credit. However, when it comes to mortgage applications, the high street lenders most likely won’t make an offer whether a default is settled or not. In the case of a specialist mortgage lender, they are likely to be more concerned with the date of the default than whether it was settled. It is your recent credit history that carries the most weight.
Defaults stay on your credit record for six years, and the older they are, the less impact they will have. If a default is (say) four or five years old and unsatisfied it will have a less detrimental effect than if it’s a year old, whether satisfied or not.
– What is the maximum size default allowable?
If the default is over a year old, the size generally doesn’t matter. Within twelve months, lenders will commonly set a maximum amount of £1,500.
With regard to the number of defaults lenders will accept, up to two years it’s commonly two; after that, again, it generally doesn’t matter.
So, if you have any defaults on your record, it is those within the last two years – and in particular the last year – that have the biggest impact.
– How do I pay off my default?
If you fall into arrears on an account, the lender will at some stage close it and a default will be registered against your credit record. As well as the missed payments showing on your credit report, the default will also show.
You may receive a default notice, which will set out how much you owe and when you need to pay it by. If you can pay, do so at this stage.
If you can clear the outstanding amount within the terms of the default notice, you can request that the default be removed from your credit record. (The late payments will remain.)
If you can’t pay, get in touch with the creditor. It’s possible you will be able to arrange to make smaller regular payments to clear the debt.
It’s possible no default notice will be sent, so it’s up to you to keep on top of things. If you do fall into arrears, speak to the creditor to organise repayment and check your credit report for any defaults that may be registered.
– What is a default?
A default occurs when you have missed – or haven’t paid in full – a number of payments to the same creditor, meaning your account is closed.
A default notice is a formal letter sent out when an account is in arrears. If the debt is regulated by the Consumer Credit Act, then sending the letter is a legal requirement, but it doesn’t mean that legal action has begun. If the debt isn’t regulated by the Consumer Credit Act, then there is no requirement for the creditor to send a notice.
Either way, if you fall into arrears and your account is closed, a default will be registered on your credit report.
– Why has the same default been registered on my report twice?
If the same default shows twice on your credit report, it is an indication that the debt has been sold on to a debt 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”. This tells anyone checking your report what has happened.
Even though the default is entered on your credit report a second time, the date it expires will not change; it stays on your report for six years from the initial entry, at which point both the entries should be removed.
– Do you take the default balances into consideration when calculating how much I can borrow?
If a lender is willing to offer a mortgage, then how much they will offer depends on your ability to repay. This is assessed using the affordability test, which will involve them looking at your income versus outgoings.
Generally speaking, if you have a good credit history, little or no debt and no problem paying the bills, you can expect to potentially be able to borrow up to five times your income.
If you have adverse credit events, such as defaults, and especially if you also have other financial commitments, you will likely be able to borrow less. You might also be expected to put down a bigger deposit.
As is so often the case, a lot of this comes down to how long ago the default happened, and therefore the risk the lender believes they are taking.
– Can I get a mortgage with a default?
It may be possible to get a mortgage with a default, but many contributing factors will be taken into consideration such as the amount of the default and the date the default was registered. Other factors including the amount of deposit or equity can also have a relevance to if you can get a mortgage and who with.
– Are there any mortgage lenders who accept defaults?
Many lenders have criteria that allow for defaults dependant on numerous factors and circumstances. These could include, but are not limited to the date of the default and how much it was for, together with the overall circumstances of the applicant.
– How bad is a default on your credit history?
This will be determined by what it is you are looking at in respect of its impact. In regard to a loan or mortgage, it is likely to have an influence but will not necessarily stop you being approved. The date and amount of the default will be taken into consideration as will all other aspects of your situation.
– How long does a default stay on my credit file?
A default will remain on your credit file six years from the registered date. However, in certain circumstances, the debt may be sold on to a collection agency that could add a subsequent default to your file at the point they took over the debt.