Getting a Mortgage After a Repossession

If you have bad credit, are self-employed or just don’t fit the mould, the mortgage world can be less accommodating than if you had a perfect credit history. And this is especially true if you’ve been through a repossession. 

This guide will help you to understand how a repossession affects your ability to get a mortgage, what factors influence a lender’s decision and how you can build up your credit rating in preparation for your application.

What happens during a house repossession?

Being faced with a house repossession can feel incredibly isolating. But you’re not alone. The financial uncertainty that followed the COVID-19 pandemic, along with the increased cost of living in the UK means sadly more and more people are encountering credit issues. If you are about to experience a repossession, it's vital to know what the process involves. 

A house repossession is where the mortgage lender takes ownership of the house. It occurs when too many mortgage payments haven’t been made. Repossession is often the last resort for lenders and will, usually, only be considered if you’ve missed at least three mortgage payments. 

If you’re late to make a payment, lenders will often allow up to 15 days before they contact you. If you’re worried about missing a mortgage payment, speak to the lender. Often, they can help by providing a payment holiday or switching to an interest-only mortgage. 

Here’s the typical step-by-step repossession process:

1. Your mortgage lender will contact you about the missed payments.

2. If the debt is not received or a payment plan isn’t possible, a possession order is then filled by the lender. 

3. A court date will then be confirmed, and a hearing will take place. The decision will be made in court. 

4. There are two different types of possession orders. An outright order involves a date for you to vacate your home and a suspended order allows you to stay living in your home while paying a fee on top of your monthly mortgage payments. If you do not vacate your home by the date agreed in your outright order, the court will carry out an eviction. Likewise, if you break the terms of your suspended order, bailiffs can evict you. 

An eviction can only take place if the lender applies directly to the court and provides you with a 14-day eviction notice. If a lender does evict you, they will sell your home to pay off your mortgage debt, and you will receive any money which is left over. Sometimes the sale of the property does not cover the amount owed. This is called a mortgage shortfall. In that case, there are different options to help you pay off the remaining debt, including a payment plan, lump-sum payments and bankruptcy.

Can I get a mortgage after a repossession?

Getting a mortgage can be daunting, regardless of your financial history. However, getting a mortgage after having faced a repossession can be a little more challenging. A repossession is considered a severe form of bad credit and will stay on your credit report for six years. This starts from the date of the first missed mortgage payment. Once the six years is up, the repossession will be removed from your credit report. 

Most high-street lenders will decide not to lend to you if you’ve had a repossession, even if it was over six years ago. But not every mortgage lender is the same. Some specialist mortgage lenders are willing to help you get a mortgage, even after a repossession. 

You should always let your mortgage lender know about a past repossession, if you don't let them know, your mortgage application could be cancelled. Most lenders have strict policies that automatically reject applications from those who have been repossessed. Only lenders who specialise in bad credit mortgages will be willing to work with people who have had a repossession in the past. 

To assess your suitability for a mortgage, lenders will look into your financial history. They do this to understand if you are still a high-risk borrower. These are the factors a lender will consider:

• The date of repossession

• The reason for repossession

• The amount owed

• The mortgage debt

• Your credit report

• Who was the lender?

The date of repossession

This will be one of the first questions a lender will ask you. As a general rule, the more recent the repossession, the more challenging it may be to secure a mortgage. This is because lenders will view you as a higher risk.

The date of repossession will also impact the mortgage rate and deposit you will need. The more recent your repossession, the higher the interest rate will likely be, and the larger the deposit required. Interest rates are often the highest three to four years after a repossession. If your repossession occurred over four years ago, you'll probably have more options open to you. 

This table illustrates how this could look.

Source: Haysto data

The reason for repossession

The reason for repossession is one of the most important factors a lender will consider. Repossessions occur for a variety of reasons, so it’s important to find a lender who understands your specific situation.

The more information you have as to why the repossession happened, the more likely a specialist lender is to accept you. Since some lenders are more lenient to those who have faced a repossession because of fraud or ill health, background information and evidence can help a lender access your case. 

The amount owed

Often lenders will look more favourably on your application if the repossession involved a single mortgage. If multiple properties were involved it can be a little more challenging, but not impossible. If your repossession was very high value, for example, millions of pounds, it will be a more costly process to get a mortgage. But, hope is not lost, every lender has a different set of criteria, and many are willing to grant you a mortgage after a large repossession. 

The mortgage debt

Fewer lenders will accept your application if you still have a mortgage shortfall. To achieve the most competitive offers, it is recommended that you pay off these debts before applying for a mortgage. If this is impractical, speak to a specialist mortgage advisor to find out the options available to you.

Your credit report

Your credit history before and after repossession is an important factor in whether lenders are willing to grant you a mortgage. Typically a mortgage is the last payment that borrowers default on. This means there may be other credit issues including missed payments, County Court Judgments (CCJs), an individual voluntary arrangement (IVA) or a debt management plan (DMP). If you’ve had previous repossessions, it could be even more difficult to secure a mortgage.

However, if you have no other credit issues, and have taken the time to improve your credit score since the repossession, some mortgage lenders will look on you more favourably. 

Keeping up with loan repayment instalments and credit card balances is a great way of showing that you are in a financially stable position. Lenders are more likely to offer you credit if you can demonstrate that you’ve overcome previous financial problems. Rebuilding your finances suggests to lenders that you are now less likely to default on your new mortgage payments.

Who was the lender?

Many mortgage providers are part of the same banking group. This means that while they trade under different names, they are under the umbrella of one parent company.

If you had a property repossessed by one mortgage provider, it is unlikely that another member within the same group will accept you. For example, First Direct, HSBC and M&S Bank are all owned by HSBC. If you are repossessed by First Direct, it is unlikely that HSBC and M&S Bank will accept your mortgage application. 

Using the services of a mortgage broker is the best way to ensure that your mortgage application is sent to the correct lender.

Mortgage Affordability after a repossession

A lender will conduct a loan affordability assessment before they accept your mortgage application. This involves lenders analysing your financial history to decide whether you can meet the terms of the loan. Want to know how much you can afford to borrow? Use our handy mortgage affordability calculator.

If you’ve had a repossession, your case is likely to be reviewed in more detail. The lender wants to ensure that you are at low risk of defaulting on mortgage payments. This means that the more evidence you can supply, which proves your suitability, the better. 

The most important information that a lender will look at is the date of your repossession. The more recent the repossession, the higher the rate offered to you. 

Lenders will calculate how much you can afford to borrow by looking at your income and outgoings on a case-by-case basis. Each lender has its own criteria for accessing your affordability. Generally, they will assess your proof of income, your credit history and your current financial situation. The amount you can borrow is typically capped at 4.5x your income. 

How to improve your chances of getting a mortgage after a repossession

There are many different ways to improve your chances of getting a mortgage. Here are a few different options to consider after a repossession:

• Build up your credit rating. After a repossession, it's a good idea to build up your credit score. Generally, the higher your credit score, the easier it is to get approved for a mortgage. To do this, try to pay off any outstanding debts as soon as possible. This includes money you might still owe for either a car or house repossession. A lender will look not just at your repossession but at your recent financial history while accessing your suitability. This means that the tidier your current finances look, the more chance you have of being accepted.

• Prepare for your application. Lenders require evidence to assess your suitability for a mortgage, regardless of whether you’ve had a repossession or not. Above all, lenders look for people who are stable and can therefore be relied upon to repay any debts. If you experience frequent changes of address, lenders may assume that you're unreliable and are unable to meet your credit repayments. One of the easiest ways of increasing your chances of getting a mortgage is by registering on the electoral roll*.

• Wait it out. The more recent the repossession, the fewer options you’ll have. Even if you’re accepted, you'll usually have to pay higher interest rates and be asked to put down a bigger deposit. So, it might make more sense to wait until your repossession is much older.

• Save for your deposit. The larger the deposit, the smaller the mortgage loan meaning you’re considered a lower risk by a mortgage lender and more likely to be offered more competitive rates. A substantial deposit can also show that you are in a steadier financial position and ready to take on a mortgage again.

• Speak to a specialist. All lenders have different criteria for accessing your suitability. A specialist mortgage broker will take into consideration your personal circumstances and financial history so that they can match you with the right lender. There are many different options which are available to you. These are often only found through a specialist broker like Haysto. Get in touch and one of our friendly Mortgage Experts will look at your options.