Can I Get a Mortgage With Defaults or Missed Payments?

A missed payment or default does not automatically mean that you cannot obtain a mortgage.

But lenders do not treat all credit problems in the same way.

The answer can depend upon:

• what was missed;
• whether it became a default;
• how much was involved;
• how recently it happened;
• whether it has been satisfied;
• whether it was an isolated event or part of a pattern;
• your credit conduct since;
• your deposit; and
• the rest of the mortgage application.

This is why simply saying:

"I have adverse credit"

does not provide enough information to determine what mortgage options might exist.

What Is a Missed Payment?

A missed payment generally means a contractual payment was not made when required.

This might relate to:

• Credit card
• Loan
• Mobile phone
• Utility account
• Catalogue account
• Mortgage
• Other credit agreement

How the missed payment appears on your credit file can depend upon the account and reporting arrangements.

An isolated historic late payment is not necessarily assessed in the same way as repeated recent arrears.

What Is a Default?

Where an account has fallen sufficiently behind, the creditor may eventually record a default.

A default is more significant than simply making a payment a few days late.

For mortgage underwriting, lenders may consider:

• Default date
• Original balance
• Outstanding balance
• Satisfaction date
• Type of credit
• Number of defaults

The combination matters.

Recency Is Important

Consider these two situations:

Applicant A

One relatively small default several years ago, subsequently satisfied, with clean credit conduct since.

Applicant B

Several defaults registered during the last few months with balances still outstanding.

Both applicants have defaults.

They do not represent the same mortgage case.

Generally, more recent adverse credit is likely to have a greater effect upon lender choice.

However, exact criteria vary.

The Type of Default Can Matter

Lenders may distinguish between different types of credit.

For example, criteria can differ for:

• Communications defaults
• Utility defaults
• Unsecured loans
• Credit cards
• Secured borrowing
• Mortgage arrears

A £100 historic telecommunications default may therefore be assessed differently from substantial recent mortgage arrears.

There is no universal rule, which is why the actual credit report matters.

Does Paying a Default Remove It?

Satisfying a default does not normally erase its history immediately.

It records that the outstanding debt has been dealt with.

The default can still remain visible for the applicable reporting period.

For mortgage purposes, satisfaction may nevertheless be relevant because lenders can distinguish between satisfied and outstanding adverse credit.

What About Missed Mortgage Payments?

Mortgage arrears can be treated particularly seriously because the applicant is seeking new borrowing secured against property.

A lender may want to understand:

• How recent the arrears were
• How many payments were affected
• Whether the account is now up to date
• What caused the problem
• Whether any other adverse credit exists

Recent mortgage arrears can substantially restrict potential lender options.

What Is an Arrangement to Pay?

An arrangement to pay can appear where a creditor agrees that payments will temporarily be made differently from the original agreement.

Applicants sometimes overlook these when describing their credit history because they do not consider them a default or CCJ.

However, they can still be relevant to mortgage underwriting.

The full credit report should therefore be reviewed rather than relying solely upon the applicant's recollection.

Why the Credit Score Isn't the Whole Answer

Consumer credit scores can be useful indicators.

But a score of 600, 700 or 900 does not by itself determine whether a mortgage lender will approve an application.

Mortgage lenders can use:

• Their own credit-scoring systems
• Credit-reference data
• Application information
• Affordability
• Internal policy
• Manual underwriting

Two lenders can therefore react differently to the same credit history.

Should I Apply and See What Happens?

Usually not.

Where adverse credit is already known, a speculative application may create another credit search without answering whether the lender's criteria fit.

A better sequence is:

1. Obtain the credit information.
2. Identify exactly what happened.
3. Establish dates and amounts.
4. Check satisfaction status.
5. Assess deposit and loan-to-value.
6. Review affordability.
7. Research lender criteria.
8. Apply where there is a reason to believe the case fits.

Deposit Can Make a Significant Difference

Loan-to-value can be particularly important with adverse credit.

A larger deposit reduces the proportion of the property's value being borrowed.

This may widen potential lender options.

It does not remove the adverse credit and does not guarantee acceptance.

Do I Automatically Need a Specialist Lender?

No.

Historic or relatively minor credit problems may sometimes fit lenders that would not normally be described as adverse-credit specialists.

More significant or recent problems can require specialist lending.

The point of research is to determine which route is appropriate rather than assuming the answer in advance.