A reader asked:
My partner and I have a combined income of £54,000, We have a deposit of £20,000 (inheritance) and are looking to become first time buyers in a new build property at a price of £210,000. We have defaulted debts that are being paid off, and previous history of payday loans from over 2 years ago from a time when our financial situation was much more difficult.
The defaults are now about 6 months old as we started to try and tidy things up when we knew the money was coming to us. We currently owe around £6,000 on the defaulted debts between us, and we have no other debts or finance. I have an active credit card, and we both have a mobile phone contract in our own names, but that’s all.
What are the chances of us being offered any kind of mortgage?
If you want a mortgage right now
Most of the suggestions below will take some time to improve your mortgage chances. If you want a mortgage straight away, you are going to have to go to a “bad credit” broker. This will cost you more in fees – be very clear about what the fees are before you sign anything. Also the mortgage is likely to be at a much less good rate.
Some people are told:
“This will just be for a couple of years, then you can re-mortgage with a high street lender at a better rate.“
You can’t rely on that happening!
Your own financial situation may be more difficult in a few years – perhaps you have a baby on the way which will affect the mortgage affordability calculations.
And even if you are fine, who knows what the mortgage market will be like in a couple of years after the first lockdown? Will the economy and lending be back to normal? Will house prices have dropped so your 15% deposit is now only 5%?
Paying off the defaults
Paying off the defaults is the first key step towards getting a mortgage at a reasonable rate from a high street lender. You want to pay them off as soon as possible so a mortgage lender can see that your problems were all in the past.
These debts don’t have to be paid in full – a partial settlement may be acceptable to some mortgage lenders.
When the defaults have all been settled more than a years ago and you have had a year free of any credit record problems, you are more likely to be able to get an OK mortgage offer.
If you already have the inheritance in your bank accounts, then it would be best to use some of that right now and repay the defaults, then start resaving the deposit money that has now reduced.
Say you can afford to pay £400 a month off your debts – that would take 15 months to clear the defaults. If you clear them now and then save that £400 a month, in 15 months time you will have your current deposit back, but your credit records will be looking much better as you will have had 15 months clear of any problems.
Check the default date is correct
Paying off the defaults doesn’t actually help your credit rating and it won’t make the defaults disappear. They will stay for six years from the first default date.
So it’s worth checking if you think the default date is correct. If any of them should have been earlier, see if you can get the default date changed as that means the debt will vanish sooner.
It also helps if the defaults are older. A mortgage lender would rather see you had problems 5 years ago than problems last year.
Lifetime ISAs
The best way to build up your deposit again would be by regular monthly saving into a Lifetime ISA if you are aged 18-39 and this will be the first property you buy. MSE has a good guide to LISAs.
So get an LISA each to maximise the help you can get! Whilst you are saving there four good things happen:
- the defaults are getting older;
- your deposit is getting bigger
- you are getting a bonus from the government; and
- it is showing a future lender that your money problems really were in the past and you can afford to put money aside from your income.
Of course during this period you also need to be fanatical about making sure all your credit cards and bills are paid on time. The last thing you want is a new late payment showing on your file… Use your credit card every month and pay it off in full every month.
What about the old payday loans?
If the payday loans are already over two years old, most mortgage lenders won’t care that much about them. And if you are taking the next year to improve your general position then they are getting even older.
However, how much did you use payday loans? If it was a lot for a period, then you should read my article on Can I get a payday loan refund? and see if you might be able to get any compensation. If you do win a complaint about these, the lender will normally delete the record from your credit file – so that might even get rid of some of the defaults.
Any money you can get back will mean you have a bigger deposit – and the larger your deposit is, the more lenders there will be that may lend despite the defaults on your credit records.
Then talk to a broker
When you have saved your deposit up again and the defaults have got older, you need to talk to a mortgage broker.
Some high street lenders say they won’t consider a mortgage with defaults in the past three years. Some won’t lend to you at all with defaults – you need to avoid applying to these lenders. A broker will be able to advise you – at this point though you shouldn’t need to go to a bad credit broker.
In mid 2020, the deposit you need has gone up – there are no 5% deposit offers and very few 10% offers.
35-40 year mortgages – be careful!
Should you remortgage after a fix ends?
88 ideas that can save you money!
Steve says
Hi Sara,
Me and my partner are looking to get a help to buy mortgage on a house we have recently viewed. Her credit rating is very high, however mine is not so good. 5 defaults, the latest was Dec 2018 however they are all settled as of June 2019.
The house is well within our affordability. 216k house and a joint income of 76k a year. Any advice would be most welcome.
Thanks and keep up the good work
Steve
Sara (Debt Camel) says
I’m sorry, the HTB mortgage market is a small group of lenders, you need to talk to a broker who specialises in this market.
Steve says
Hi Sara thanks for the speedy reply!
We’re using a local one at the minute but becoming more and more frustrated with them.
Do you have any recommendations of a national one perhaps you have heard good things about?
Regards
Sara (Debt Camel) says
I’m sorry, not for HTB. all I can suggest is googling and then phoning up and talking to them. But if you are changing broker, make sure you won’t have to pay the current one a fee :(
A says
Hi Sara
Please can you help! We are at a lost spoken to two mortgage advisors and getting no where. My partner credit is perfect score of 999! Mine on other hand I have 5 defaults from October 2018 all paid off and never had any trouble since! We have a good deposit of around 25k a joint income of over 46k and can’t seem to find a mortgage! Anywhere do you have any recommendation. Thank you
Sara (Debt Camel) says
how much do you want to borrow?
when were the defaults paid off?
A says
Between 190-220
They was paid off around June 2019
Sara (Debt Camel) says
There are very few 10% deposit mortgages around at the moment.
Before the current situation, many lender had a rule that they didn’t mind about defaults paid over a year ago – you just squeeze past that – where the defaults are more than 3 years old. Which yours aren’t.
I’m not sure you can do much except come back when the mortgage market improves.
A says
Thank you
Yes that’s what we are getting really maybe in 6 months we have a chance. Just feel like hitting a brick wall as we have a deposit ect
Sara (Debt Camel) says
People with a spotless credit record are finding it very hard to get a mortgage at only 10% deposit. Tough times.
Rosie says
Hi Sara
I currently own my £400k home and have a mortgage of £154k on it at 2.5%.
I am due to remortgage next month and my now husband wants to join me so that we can borrow around £130k to do some works to the house.
He has a great credit history with just a loan on a car and a small balance on a credit card o/s (which he plans to clear with some of the above cash).
I however have a very poor credit rating – mainly from 2 defaults back in 2018 on overdraft fee’s. I have since paid these off in full and also only now have 2 credit cards one with a £3k balance that I plan to clear with the cash and also one with a £0k balance that I have kept opened.
Please could you advise what you think our chances are of getting accepted – do the rules for remortgaging differ.
Our joint income is over £80k a year.
Thanks in advance.
Rosie
Sara (Debt Camel) says
This is a very difficult mortgage market at the moment. I suggest you talk to a broker about your options. If your fix is now ending, find you what the standard variable rate would be.
If the broker is not optimistic about your chances at the moment, a sensible choice for you wmay be to just change to the SVR and concentrate on clearing your credit card db=ebts. You have a good combined income and a very low mortgage so it shouldn’t be hard. Then in 6 months come back again – at the point your defaults are older, you have both cleared off debt and you will need to borrow a little bit less as well.
Matt says
I’ve managed to get my credit score up to 995 after years of sorting myself out. Just had my first year accounts bk, looking at 44k profit. Would this be enough to go for a 190k mortgage with a 10% deposit, no debt as all has been paid? Cheers
Sara (Debt Camel) says
Probably not just at the moment…
a) there are almost no 10% deposit mortgages on offer
b) many lenders want more than a years accounts fro the self employed, or will only take into account 80% of their profit or have other obstacles.
You can talk to a broker, but the best advice may be to wait 6 months or a year.
Matt says
Hi
I still have an ongoing debt management plan after 8 years which I pay a small nominal amount. £3k left to pay. All defaults and history has now dropped off my report. My credit score is excellent now.
How will this affect a mortgage application? I have plenty of disposable income but have been using this to save for the deposit…
Many thanks
Sara (Debt Camel) says
You won’t be able to get a mortgage at a reasonable rate from a high street lender until tour debts are settled. the lender will ask to look at probably 3-6 months of bank statements and will see the payment to your DMP even though the debts are not on your credit record.
You don’t have to settle the debts in full – a partial settlement, also known as a full & final settlement is fine, see https://debtcamel.co.uk/dmp-partial-settlement/
Hyal says
Where can I find a mortgage broker as I have a recent default and am looking to get a shared ownership mortgage,
Sara (Debt Camel) says
Sorry, I can’t recommend a bad credit mortgage broker.
Scott says
Hi.
I am looking to get a mortgage with my girlfriend. I have an excellent credit history however she has a 4.5 year old satisfied default. Other than that her credit history is squeaky clean. We have an agreement in principle with Santander but worried it won’t be accepted when reviewed. How much of a problem do you think this will be?
Many thanks
Sara (Debt Camel) says
how long ago was the default satisfied?
Scott says
Was satisfied about 2/3 months after the default date so over 4 years
Sara (Debt Camel) says
I would hope that would not be a problem then as she has been “problem free” for so many years. Good luck!
Scott says
Fingers crossed! Thanks for your help
Yetty says
Hello Sara,
I am applying for Right to Buy with my local Council for a 2 bed flat. I am applying with my husband who has a slightly better credit score with clearscore. Mine has just gone up to 316 after I cleared my credit card balance last month. Combined income is £51000
However, the main issue is a default was added to my account in November 2018 through a guarantor loan on behalf of my brother. He has now set up a payment plan with the lender and they will review in 3 months.
Do you know if I will still be able to get a good mortgage rate or any mortgage with high street lenders with my RTB discount of almost 10 years? Please your insight will be greatly appreciated? Thanks.
Sara (Debt Camel) says
I can’t answer your question – there are few mortgage lenders in this sector.
BUT can you suggest the borrower of the loan reads https://debtcamel.co.uk/how-to-complain-guarantor-loan/ ? If they can win an affordability complaint, you should be released as guarantor and any negative marks on your credit record should be removed
Yetty says
Thanks. I will look into the affordability complaint.
Vicky says
Hi, I have 2 defaults both in 2017. I repayed Both debts March last year (Down as satisfied) as me and my partner got decline because of my defaults caused me to have very poor credit score. We are looking into trying a mortgage again next year so the default will be 4 years old, what do you think my chances would be next time round please?
Sara (Debt Camel) says
Improved! But what the whole mortgage market will be like next year is tye question. Go through a Broker, don’t apply direct.
Sam says
Hi I have a 5 year old default for £100. My 5 year fixed mortgage is due to end in 3 months and I was wondering how much of an impact this will have. I have an otherwise immaculate credit report? The debt was repaid immediately after default.
Sara (Debt Camel) says
I think that is unlikely to matter. But if you want a new fix from a different lender, go through a broker.
Sam says
The lender I am currently with is peppermoney and because they are a specialist lender they don’t put you on another deal when your fixed rate ends. We will have to go to another lender, hoping my silly mistake has not cost us as we worked so hard to get the mortgage in the first place due to ccjs and defaults on mine and my partners
Sara (Debt Camel) says
is your partner’s record now clean?
Sam says
Yes it completely clean and my default was for a closed npower account, part of the final bill i thought i had set an arrangement for.
Sara (Debt Camel) says
ok so talk to a good broker, not a bad credit broker. Hopefully you have enough equity to get a good offer from a mainstream lender.
Sam says
Thank you so much I have been worrying like mad. Our remaining mortgage is £50k on a house worth 90k
Jessica Riding says
Hello,
I am wanting to make an offer on a house. I have 15% deposit ready to go but I have 4 defaults, one finish’s October and the other three finish in December 2020. Do you think this will make somebody decline a mortgage application? I have mortgage in principle but I know that they don’t always give you the mortgage.
Sara (Debt Camel) says
When you say the defaults “finish” do you mean they will be paid? Or that they have been psi’s already and they will drop off your credit record?
Zara Turn says
Hello,
I am wanting to get a mortgage in the Summer of 2021.
I currently have two defaults on my account from February 2019 (settled September 2019) and August 2019 (settled June 2020), my last missed payment was February 2020 and I have no debts (except phone bill and car insurance).
I am wanting to get a 5% help to buy property costing around £170,000 and I am earning £44,000 per annum.
What are my chances of being able to get a mortgage as I am concerned that I won’t be eligible to any mortgage lenders, except for the “bad credit” ones with sky high interest?
Sara (Debt Camel) says
The help to buy mortgage market us a small set of lenders. I don’t know anything about it specifically but next summer your defaults and missed payments will still be less than three years old, so I think you may well find this very difficult.
Eilidh says
Hi,
We got a MIP and an offer accepted on a house, all going fab till 3 default accounts were found on my credit history from 2015 ( although they all appear to be the same amount from the same lender) this was probably a shop credit account from when I was a student. I have no idea about how to find out the details for the accounts. They are just under an umbrella of shop direct. For £100. My question is should I pay them now, if I can find out how. Or will it have very little effect on securing the mortgage at this point?
Feel gutted. In a much better financial position now. Looking for a mortgage of £110k between my husband and I, he has a good credit history with no black marks. Hoping offering a guarantor might help swing it for us. Both secure NHS and mod jobs. Do you think we can still get accepted?
Sara (Debt Camel) says
What a pity you did not check your credit record 6 months or a year ago!
Do these accounts have default dates recorded, or are they just showing 6 month in arrears?
Jenny says
Hi their
I their there is a default on my credit file for £200. it was from 2016 oct. Next month will be 3 years since I had default. It was cleared and all paid of in a debt management plan last payment was last november 2019. A high street lender declined an underwriting stage as they accepted the default but because it was on a dmp it didnt fit their criteria. My credit score isnt the best but I’ve worked so hard to improve it. It’s gone up 23 points in last month. My partners score is amazing tho. I currently dont have any debts. We have a mortgage advisor and he has applied for a specialist lender we have had are mortgage in principle and also done the full application. We had to pay the survey fee and now they said we just have to wait for them to be in touch. We have applied for the specialist lender I know the rates are higher but were in the situation were we need to buy are house asap . Looking on criteria it says they accept people who are actually on a debt management plan currently mine was paid of last year and it’s been nearly 3 years since I defaulted. Anyone got any advice as I keep worrying and stressing thanks
Sara (Debt Camel) says
My suggestion would be to wait another 6 months until it is more than a year since the DMP ended and go for a high street lender. Sorry. I have seen too many people trapped with very high mortgage rates unable to remortgage later onto a better rate.
Terri says
Hi there,
Myself and my partner are looking to purchase a new build house (completion date may 2021) My partner has an excellent credit score however mine shows as fair across the 3 CRAs asI have a default of £798 from a utility company dating back to October 2017. I wasn’t aware this was outstanding so luckily I had checked my credit file and spotted it, it was cleared and marked as satisfied in August 2020. I have a credit card and overdraft which are both kept at a 0 balance but no other credit agreements.
We have a combined income of £75K and have a 15% deposit is it likely we will be accepted for a mortgage?
Sara (Debt Camel) says
Sorry, you need to talk to a mortgage broker about this as the default has only recently been paid.
Ben Smith says
Hi there,
My partner and I are in the process of looking for a new home together. She has excellent credit history and score whereas mine is poor.
She is currently a homeowner as she owns the flat we’re living in.. We would be looking to sell her place and use the equity from this in combination with a joint mortgage to get a joint place. I have defaults on my account from last year and January this year – but everything is completely paid off. What are our chances of being offered a mortgage?
Sara (Debt Camel) says
I don’t know what your timescales are or when you have repaid these very recent defaults. I think you need to talk to a broker about this.
Ben Smith says
Hi Sara,
One of defaulted accounts was settled in November 2019 and the other was settled in early June 2020. We’re looking to try and move in January/February time.
Sara (Debt Camel) says
Talk to a broker. A default that has only been settled on the last year can be problematic.
PPPP says
I got 5 k from family towards deposit but Im on debt management plan and both me and my partner got defaults on accounts in that situation is there any chance to be able to get a first time buyer mortgage or there is no chance for us ?
thank you very much
Sara (Debt Camel) says
Are you talking about a Help To Buy?
How much debt is remaining on your DMP?
John says
I have one default from an account with an energy provider from 2019. Is this likely to be a limiting factor when it comes to a mortgage approval?
Sara (Debt Camel) says
Yes. Talk to a broker about your options.
John says
What kind of options are usually available?
Sara (Debt Camel) says
That will depend on your situation – if the default was very small or it was paid off very quickly and you have a big deposit, it may be fine.