A reader, Mr D, asked:
My partner and I have a combined income of £56,000, We have a deposit of £28,000 (inheritance) and are looking to become first time buyers at a price of £230,000. 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 about 18 months old. We started to try and tidy things up when we knew the money was coming to us. We currently owe around £9,000 on the defaulted debts.
I have an active credit card, and we both have a mobile phone contract in our own names, but that’s all apart from the defaults.
What are the chances of us being offered any kind of mortgage at a reasonable rate?
Contents
When is a default “recent”?
Obviously a default a few months ago is recent and one 5 years ago is old. But many people have defaults in the middle, like Mr D.
Mortgage lenders in general care about two things:
- when did the default happen? the longer ago it was the less likely it is to show you have current problems.
- when did you repay the debt? High street lenders do not like you to have unpaid defaults, even small ones. And the longer ago the debts were cleared, the more obvious it is that you are now fine.
Pre pandemic, there was a common approach used by many high street mortgage lenders that defaults were OK on your credit record if they were all over three years old AND they had been repaid for more than a year. Mr D currently fails on both of those requirements.
During the pandemic, a lot of high street lenders stopped lending to anyone without a squeaky clean credit record. But in late 2021, mortgage lending has picked up a lot.
With recent defaults, your only option may be a bad credit lender
The suggestions below will take some time to improve your mortgage chances.
If Mr D wants a mortgage straight away, he will have to go to a “bad credit” broker. There are three big problems with doing this.
1. It costs more
The fees to arrange the mortgage will be larger. Be very clear about what the fees are before you sign anything. Can you get your money back if a mortgage is not arranged?
Also the mortgage is likely to be at a much less good rate.
2. You may not be able to remortgage with a normal lender
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? If house prices fall from their current highs, your 15% deposit may reduce to 5 or 10%
3. If you can’t remortgage, your interest rate may jump a lot
If you can’t remortgage at the end of the fix, then you will be stuck on your lender’s standard variable rate (SVR).
Anyone thinking that they can manage a bad credit mortgage needs to ask the lender what their SVR is at the moment. If interest rates go up over the next couple of years – which is what most economists are predicting – SVRs will also go up.
And there is the horror scenario that you may find a bad credit lender’s SVR is increased even when other mortgage rates are dropping. This happened to many people in 2009 and 2010.
Sorting out the old debts
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. These debts don’t have to be paid in full – a partial settlement may be acceptable to some mortgage lenders.
You want to pay them off as soon as possible so a mortgage lender can see that your problems were all in the past.
When the defaults have all been settled more than a year 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 Mr D already has the inheritance in his bank account, 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 been 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.
Defaults not showing on your credit record also need to be settled
This reader doesn’t have old defaults, but some people will have debts where the default was over 6 years ago so it has already dropped off their credit record.
These old debts still matter if they haven’t been settled, see “Can mortgage lenders see old debts, no longer on my credit record? for details.
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.
What about 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 sometimes delete the record from your credit file and will always delete it if there is a default or a missed payment.
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.
Lifetime ISAs
If Mr D clears some of the old debts and then wants to rebuild their deposit, the best way would be by regular monthly saving into a Lifetime ISA. You can have one if you are aged 18-39 and this will be the first property you buy. MSE has a good guide to LISAs.
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…
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 late 2022, there are some 5 % mortgages on offer, but you need a very clear credit record.
35-40 year mortgages – be careful!
Remortgage and save money when a fix ends
88 ideas that can save you money!
Charlotte purcell says
Hi. Thank you for getting back to me. I hadn’t visited the property due to Covid 19. I had been living at another address during the pandemic and thought I wouldn’t need to set up a water account until I moved in as no water would be getting used whilst unoccupied. I settled the bill soon as I opened the mail. The default was applied in July and I settled the default this month.
Would I still be able to remortgage or and apply got a mortgage next year ?
Thank you.
Sara (Debt Camel) says
Well you can ask the water company to remove the default as a goodwill gesture. This is worth trying, but you can’t really say it is unfair as you never contacted them to let them know of the situation and, from their point of view, you ignored the letters they sent you.
Is your current mortgage fix ending? You should be able to get a new fix from your current lender. But if you want a mortgage from a different lender, talk to a mortgage broker about your situation.
Jamie says
Hi Sara
Me and my partner are currently looking to get a mortgage we have an decision in principle with Halifax (who I also bank with )
My partner has 996 credit score and my credit score is high range ofpoor borderline fair
I have 3 defaults 2 are 4 years old 1 is 5 years old
All paid off and full satisfied in 2019 over two years ago we have a 75k deposit and looking to borrow around 225k mortgage , I earn 30k a year before over time bonus and after tax my partner earns 26k a year , I have 2 car loans totalling 12k no other debt
Taking in mind the aip would we still be accepted as I’m unsure if the bank is aware of my defaults which I would guess would come up on there soft credit check?
We do have a broker by the way I’m just really unsure what the chances are here even with a decision in principle
Sara (Debt Camel) says
It sounds like it may well be ok to me. Come back and say how it goes – good luck!
VJM says
I have 2 defaults, one is 5.5 years old and fully settled, the other is 2.5 years old and there is still a £2500 balance which I have been paying at £80 a month.
I am splitting with my Partner and should have around £90-100k for a deposit when we sell our property. If I am looking for 70% LTV mortgage will this make my chances any better?
I earn a £50k base with £10-£20k annual commission on top.
My credit rating dropped from 778 to 548 since July, I took out a £1k Vanquis CC and and a £1k loan for a holiday. I plan to clear the credit card this month, I didn’t think that it would have such a huge impact on my score, I also plan to settle any outstanding debts when we sell the property.
I have submitted a credit report, payslips etc to a specialist broker and I’m waiting to hear back.
The loan was from Lendable who I didn’t think were payday lenders however having done some research it seems they aren’t viewed very favourably either.
Sara (Debt Camel) says
the Lendable loan – what is its term?
The outstanding default needs to be settled asap. This is likely to be your biggest problem.
Why with such large commission payments have you not been able to settle the outstanding default and did you need to take out the credit card and this small loan? What other debts do you have outstanding – car finance? other credit cards?
VJM says
No car finance, it’s in my partners name because of my bad credit, although I cover the payment, if we split up I’ll need to try and take on the lease not sure how that will go, 2 years out of 4 left but not my biggest concern at the moment.
I was going on holiday and commission was delayed by a few months (it’s paid on a monthly basis rather than a one off lump sump) because of covid and the nature of my sector. I know in an ideal world I shouldn’t have taken them out however the holiday was paid and I would have had no spending money for me and the kids. These were the only credit options available, I have paid back a large overdraft in the past few years too, I requested an OD from bank for holiday but it was a no.
The loan is over 12 months and I will be paying the Vanquis card in full at the end of this month. I have a small amount on a store card, £200 which I have been paying down and I plan to pay off this month also. I have 3 other defaults that I have been paying off, they are older than 6 years so not on credit file. I have around £10k left to pay and have been paying £300 a month to these too. I know they will show in bank statements for lenders and I plan to clear these from house sale also.
Sara (Debt Camel) says
“if we split up I’ll need to try and take on the lease not sure how that will go”
It won’t be possible. The lender will not agree to you taking on the debt in your name. I think you may have to plan on carrying on paying the lease even though it is in your ex’s name.
It sounds as though you will only be able to get a “bad credit” mortgage. Having a large deposit doesn’t change the fact that you have a lot of uncleared defaults – the ones off your credit record are bad because the lender will see them And recent defaults show that this wasn’t some historic problem but your finances are still not on a good footing.
frogman says
I was just wondering if anyone here with default has recently managed to get a mortgage with 10% deposit. I have been doing a lot of research online and I am a bit confused as to the chances of getting one with 10% when default is over 3yrs. I even read somewhere here that 10% deposit is now difficult with a squeaky clean credit file.
I have managed to clean up my mess but still have 4 defaults on my credit file, 3 of them are over 3 yrs and the fourth will be 3yrs on the 2nd of January. I am desperately looking to buy and already have the deposit
Sara (Debt Camel) says
Other people’s history, even recent, may not be of much help to you.
You have several problems – first that you have not yet settled all the defaulted accounts. And the accounts with missed payments. And there is a payday day loan with payment arrangements still showing. These make it HIGHLY unlikely you will get a mortgage from a high street lender – you need to talk to a broker about your chance of a bad credit mortgage.
frogman says
Thanks Sara,
Things have improved slightly.
The payday loan is gone, 247moneybox took it off, meaning last payday loan is now over 3yrs.
I now have only one outstanding default which is not settled – Natwest CC, it’s the one that will be 3yrs in Jan, it has a balance of £2400. Credit score on experian (I know this doesn’t mean much) has moved to FAIR.
Sara (Debt Camel) says
The age of the default only matters if it has been settled.
You are not going to get a mortgage from a high street lender with unsettled defaults. Most like the defaults to have been settled a year or more ago.
A credit score is irrelevant.
If you don’t mind a bad credit lender, talk to a broker now, I have no idea if they will want more than a 10% deposit.
Otherwise you need to settle the outstanding default and wait a while. January is not at all likely.
frogman says
Thanks very much Sara,
Please do you know if partial settlement will matter for the mortgage if I settle the account today and wait 1yr for the mortgage? Balance is now £2300 on that credit card and I plan to speak to Moorcroft (Natwest passed it to them) tomorrow if they will accept part settlement. Thanks
Sara (Debt Camel) says
That is hard to say – see https://debtcamel.co.uk/dmp-partial-settlement/. If you can’t settle the debt in full, then settling it partially and sooner may be better than waiting and settling it later in full.
Obviously I have no idea what the mortgage market will be like in a year time. A year ago, it was VERY difficult.
frogman says
Thanks very much Sara,
I have decided not to settle the default account after speaking to a broker today. As you rightly said, it wont make any material difference until probably around a years time.
We ran through my credit file and other bits and he said I will pass the criteria for 2 or 3 lenders that they work with from the first week of January – when all defaults are over 3 years with one unsettled default allowed. He said a 10% deposit would be in the 4.5% range whilst 15% would be around 3.9%
We have a fact-finding meeting middle of December to make sure everything is covered in preparation for a DIP application first week in Jan.
In my case, all my adverse entries are around the same time so its either waiting another 3yrs when everything is clear, or I go ahead with this high interest one.
Sara (Debt Camel) says
ok so I am not trying to talk you out of this but:
In my case, all my adverse entries are around the same time so its either waiting another 3yrs when everything is clear, or I go ahead with this high interest one.
Surely another option is to settle that the default account now and wait a year. At which point all your defaults are over 3 years old AND have been settled for more than a year.
frogman says
Yes, you are right Sara,
but settling the credit card will reduce the amount of deposit I have, especially when considering that we may end up with 15% for a reduced interest in January.
My understanding is that I am still going to be limited with options even if I wait till next year, plus we’ve massively outgrown where we currently live. So it’s either I pay more in rent to move elsewhere or pay more in interest rate.
What is broker said is that we aim for the shortest possible fixed term so that in 2 to 3 years time, we would be able to switch with a much better credit history
Sara (Debt Camel) says
broker said is that we aim for the shortest possible fixed term so that in 2 to 3 years time, we would be able to switch with a much better credit history
That is what they always say.
But find out what the lenders variable rate is when the fix comes to an end…. Because there is no guarantee that you will be able to switch at the end. It isn’t just your credit record, it’s what has happened to house prices (that affects your equity, it doesn’t always go up) and the mortgage market which is out of your control.
You may be stuck on a very high variable rate. That’s why debt advisers don’t like these lenders.
If the variable rate is tied to base rate, at least they can’t artificially jack it up. Some bad credit lenders increased variable mortgage rates in 2008-10 at the same time as normal lenders were cutting their rates.
HLTCO says
My fiance and I will likely look to buy a property together at the end of 2022. We have a great joint income and will be in a position where if we needed to, we could put down at least a 25% deposit without stretching ourselves at that point. She has a squeaky clean credit history however I do not from 2016 through to early 2020. I recorded two defaults – one in Nov 2017 and one in Jan 2018. The Nov 2017 one was on a personal loan and significantly large at the point of default at £24k and the Jan 2018 was for a credit card for £9k. I also went through a period in 2016-2019 of taking out numerous payday loans (probably 50 in that time). I have settled all of my outstanding debts repaying everything in full, with the Nov 2017 default finally being paid off in June 2021. The Jan 2018 one was paid off in Jan 2021. Following advice from this website, I applied for and received resonable compensation from most of the PD lenders in 2020 apart from ones that went into administration. My defaults will be 5 and 4 years old by the time we are looking to buy our property, and there will be no PDL history for at least 2 years as well. Given we are still a fairly long time away from applying for a mortgage, assuming there are no further changes in our situation, what would make the most sense from a mortgage application perspective? Would a broker be the best port of call instead of direct applications? What are the chances that my negative history is not an issue for high-street lenders?
Sara (Debt Camel) says
Which payday lenders that have gone into administration do you still have loans showing for?
The 24k loan – who was it from and have you looked at an affordability claim for that?
The 9k credit card – was your limit increased too high? After you were only making minimum payments? After you had started using payday loans?
HLTCO says
I have no loans outstanding for anyone – everything was paid off before any administrations happened but then my affordability claims didn’t close before the administration. They are on my credit file still but not sure I can do anything about that.
The 24k loan was from Zopa – I haven’t done an affordability claim. I took the loan out in April 2016 and then got into some gambling issues and defaulted Nov 2017.
The 9k – limit was increased before I got into trouble so at the point it wasn’t unreasonable I’d say.
Sara (Debt Camel) says
They are on my credit file still but not sure I can do anything about that.
which are the lenders? There may be something you can do…
So the Zopa loan was before you had a gambling problem? Can I ask why the loan was so large?
If there is any way to get the default challenged, it improves your mortgage application. I would hope you will be able to get a mortgage by end 2022 but all improvements before then will help!
But 100% go through a broker. you don’t have to go to one specialising in bad credit. Why play Russian Roulette by applying at random to a high street bank only to find they turn you down bot another one wouldn’t?
HLTCO says
It is lenders like MrLender, 247Moneybox, QuickQuid, OnStride, Moneyboat
I stand corrected – I had pushed the situation so far out of my memory that I was wrong. I took the Zopa loan out after having lost my savings through gambling. The loan was an attempt to win money back and give my sister a loan as she needed help with a house purchase. I am putting together a complaint now to Zopa with bank statement evidence showing enormous sums going out from the account in the 3-4 months before the loan was approved.
Thank you for the advice and broader help I have had from here. Some great wins and I hope for one more here!
Sara (Debt Camel) says
ok so 247 Moneybox and QQ/Onstride are in administration. By mid 2022, the administrators are very likely to be past the point at which they reply to queries from the CRAs – at that point you can contact the CRAs and ask them to suppress the payday loans, see https://debtcamel.co.uk/correct-credit-records-lender-administration/
HLTCO says
Just wanted to say Zopa has rejected my complaint because their underwriting process showed the loan was affordable despite me attaching the bank statements showing the sizeable outgoings.
I’ve asked them to review again before I forward to the FOS.
Do you think the FOS might uphold this or is it unlikely at this stage?
Sara (Debt Camel) says
Lenders reject a large number of good complaints saying their checks showed the loan was affordable.
You know it wasn’t affordable because of the gambling.
The question for FOS will be whether Zopa should have made more checks when they would have seen the gambling… this is such a huge loan, I do not know what FOS will say but it seems worth a go!
HLTCO says
So update! I replied to Zopa to say I would like them to take another look at the decision and they finally came back to say they agree the loan should never have been given and they will remove it!!! Zopa have said they will buy the loan back from Cabot and agree a repayment plan, and also remove the default. When I defaulted, they passed the loan to Cabot Financial and I worked on paying it off completely, which I managed in June 2021. I’ve sent them the letter showing that I have paid it all off and no need for them to buy it back so hopefully they will still remove the default from my file!
I can’t tell you how huge this is for me – thank you so much!
Sara (Debt Camel) says
You should get a refund of the interest you paid so that should be good.
Thanks for coming back with what happened – it’s helful to know which lenders are prepared to “look again”
Andy says
Hi Sara
In your opinion what are my chances of getting a decent rate on a mortgage at the moment? I have a deposit of £20k and will be in the market for a property around £180k.
It will be a sole mortgage in my name. I earn 43k per annum and have no debt whatsoever as this was all cleared during lockdown. I now use my credit card regularly (6.3k limit) but settle in full every month.
I do however have a sketchy record from the past. I had a default of around 10k applied to my file for a personal loan with the Halifax around 4.5 years as go. This was settled 15 months ago but is of course still visible on my file for around another 18 months.
I also have 6 payday loans from 247 moneybox showing on my file (no late payments). This is what I’m most concerned about as my unaffordability claim was found in my favour but they are dragging their heels in removing the accounts from my file. The most recent loan was paid off in November 2018.
I really value your opinion so any guidance will be greatly appreciated.
Thank you in advance
Sara (Debt Camel) says
I think you need to talk to a good broker about your chances. I’m sorry but there isn’t much point in me guessing.
Jon says
I think you’ve got an excellent chance.
I’ve got 8 defaults around 4 years old and my last was paid off around 10 months ago.
2.6% interest with a high street lender at 4.5x joint salary.
frogman says
After waiting out my defaults to be over 3yrs, I am now fully in the market searching for a good broker and a mortgage, thanks to this website, otherwise I would never be in this position.
We have a 48k deposit and looking at houses around £320k which is 15% but we are still struggling. What I can gather from the brokers I have spoken to is that there doesn’t appear to be a middle ground lender between high street lender and adverse credit lender which is really frustrating.
The best I have got so far is 4.6%, I am unsure what to do as we really need to move house.
Credit file
– 6 defaults – 3 credit cards and 3 mobile phones, all over 3yrs with only one credit card outstanding with £2300 balance)
– Payday loan over two years ago
-Last missed payment almost 2yrs ago
Thanks
Sara (Debt Camel) says
As I have said to you several times, the criteria that many high street lenders use is that default dates have to be over 3 years old AND to have been settled for more than a year. You have passed the first of those points but not the second. I suggested you should have settled tha5 last defaulted credit card last year, but it seems you haven’t.
So far as I know there isn’t a middle ground lender between bad credit lenders and prime lenders.
Unless you want to be stuck with a very expensive mortgage, which I do not recommend as there is no guarantee that you will be able to remortgage to a better rate after a couple of years, you need to find somewhere suitable to rent.
Stu says
Hi,
I’m looking at applying for a mortgage next year, by which time the 2x blemishes on my credit report will be 4 years old. Both are loans, £900 in total. The creditor has marked these defaults as ended with a current balance of £0 on both accounts. Would mortgage lenders view those more favourably than defaults currently “open”?
Sara (Debt Camel) says
Yes.
But what happened? Did you make a partial settlement or what?
Stu says
I didn’t offer any settlement and stopped payments. The lender ceased visiting the address to collect once the loans defaulted and marked the accounts balance as £0 and closed at the same time. I’m aware one default is more favourably considered than two, of course, but I wondered the impact of having 2 x defaults, marked as £0 balance, which would be 4 years old at the time of application.
Sara (Debt Camel) says
who is the lender?
Stu says
Loans at Home
Sara (Debt Camel) says
had you had a lot of loans from them before these last two?
Stu says
None, and no other adverse markers.
Sara (Debt Camel) says
that is very odd. I had hoped you might be able to make an affordability complaint and get the defaults removed, but with only 2 lons that is unlikely.
Adam says
Good morning,
We are in the process of purchasing a property however I am now at the nervy stage as I have two defaults on my file.
These are both due to drop off in April 2022 and were settled in full 5 years ago.
In an ideal world we would love to wait until April but it is a new build and the builder wants the missives done within 28 days of reservation. Move in date won’t be until July 2022.
Property price is £230,000 and we will be putting down a £35k deposit (just over 15%).
My partner has perfect credit and I have had no payment issues since 2017 when defaults were settled.
Using a broker and they have had AIP in place with Barclays and I also have another I done myself with NatWest.
Do you think we should be able to get an offer with a high street lender provided affordability passes etc.
Thanks in advance
Sara (Debt Camel) says
I would hope so, but really your broker is in the best position to know.
Adam says
Thanks Sara.
Just a waiting game.