Mortgages with a default

A default happens when your account with a creditor (people or company you owe money to) is closed because you’ve repeatedly missed payments and an outstanding balance. For example, this could be on a credit card, mobile phone provider or utility company, rent or a mortgage. You can get a default on your credit history regardless of how much money you actually owe. For example, it’s possible to get a default for a very small amount.

The way you end up with a default is the creditor (the person or company you own money to) will have made an attempt to reclaim the money. And a default happens after a period of missing payments for three to six months, sometimes longer, but this very much depends upon the creditor’s own terms.

You’ll usually have been sent a default notice before your account being closed – and this is essentially a request for you to repay your balance before further action is taken.

A default means that you failed to repay a debt, so it negatively affects your credit score – causing it to go down. 

Lenders don’t like defaults because it’s a signal to them that you’ve struggled to repay debts in the past. And this means you’re considered a ‘high-risk’ borrower.

The amount of your deposit will depend on the specific lender who you apply to, your credit report and other lending criteria. One of the ways that having a default can impact your ability to get a mortgage is that a lender will be unwilling to lend you higher amounts. This means that you might not be able to borrow the maximum amount based on your income, like someone with a good credit score.

A default will stay visible on your credit report for a period of six years, even if you pay it in full. After that time, a lender won’t be able to see the default when searching your credit history, but might ask you if you’ve previously faced financial difficulties such as missed or late payments. You should let them know the details, even if it was longer than six years ago.

This depends on a few things, and also depends on an individual lender's criteria. A lender will look at the details of your default to work out how much money they’re willing to lend to you. They do this so they can work out how likely you are to default a payment with them.

They’ll look at:

• When the default(s) took place – if it was a long time ago, they’ll be willing to lend you a larger amount than if it was recent. 

• How much money it was for – if you defaulted a large amount of money, they’ll be willing to lend you less money than if it was a small amount. 

• How many defaults you have – if you have multiple defaults, they’ll generally be willing to offer you less. 

• If you’ve paid it off – they’ll be more willing to offer you more money if you’ve paid the default than if you haven’t. 

To further work out how much they’re happy to lend to you, lenders will look at your income, as well as your outgoings to work out what kind of money you can afford to borrow. They do this to minimise any risk on their part.

An industry average is that lenders will lend an amount of between three and five times your salary. If you’re applying for a mortgage with multiple people – it’s the combined total.

Each lender is different, but some will offer you a mortgage soon after a default, for example, three months ago, whereas others will want it to be a long time ago – five to six years. 

Whether or not the lender chooses to offer you a mortgage after a default will depend on how long ago the default was, how much it was for, if you have any other defaulted payments and if you’ve paid the default(s).

The only way a default will be removed is if it was added to your credit file by mistake. Even if you pay a default, it will stay on your credit file for six years, just like any other other issue that negatively affects your credit score.

Usually, the higher your credit score, the easier it is to get approved for a mortgage. So it’s always a good idea to do what you can to improve your score before applying if you can. If you’re really pushed for time, and have a low credit score but need to get a mortgage soon; make an enquiry and we'll find out your options.

Here are some top tips for improving your score:

• Pay off any outstanding debt in full (including credit cards, loans, and similar). If that’s not possible, just pay as much as you can.

• Make sure you’re listed on the electoral roll. 

• Consider reviewing the number of credit cards and accounts you’ve got open. Even if they don’t have outstanding balances. 

• Use your available credit in a sensible way. For example, make small purchases on your credit card and pay off the balance in full each month. That can help build your score because it shows that you’re making repayments on time.