Mortgage with Defaults

Finding out you have a default on your credit file can be worrying if you’re hoping to get a mortgage. However, while this can lead to a rejection from a high-street bank, getting a mortgage with a default is entirely possible.

We speak to people every single day with defaults on their record, often people don’t even know they have one. But don’t panic, there are plenty of specialist lenders who will consider applicants with minor credit blips.

At Echo Finance, we've helped many people in your situation, and we're here to help you too. That's why we've put together a guide to help you understand how high street and specialist lenders view defaults, and how our expert brokers can help you secure the finance you need, even with a default.

Can you get a mortgage with a default on your credit file?

Yes, you absolutely can. A default stays on your credit file for six years, but its impact on your ability to get a mortgage decreases significantly over time.

When you apply for a mortgage with a specialist lender, they won’t typically automatically decline you based on a default, as they use human underwriters. Human underwriters (manual underwriting) involves a detailed look at your whole application, not just your credit score. Lenders who use manual underwriting will usually look at:

• The age of the default: A default registered four years ago will have far less impact than one registered four months ago
• The reason for the default: If you’ve experienced a life event or hardship such as divorce, illness or death in the family, this will usually be taken into consideration
• Whether it’s satisfied or unsatisfied: Lenders tend to prefer satisfied defaults (repaid in full) but some will look at unsatisfied (unpaid) defaults, depending on the age and severity of the debt
• The amount: A £50 default from a disputed gym membership is viewed very differently from a £5,000 default on a personal loan
• The type of debt: Lenders are generally much more forgiving of defaults on communications (like mobile phones or broadband) than for defaults on secured loans or previous mortgages
• How many you have: Whether you have more than one default makes almost as much different as the amount, as multiple debts could demonstrate a similar level of financial struggle

Satisfied vs. unsatisfied defaults

If your default is satisfied, it means you have paid the debt in full. While it remains on your credit file, the satisfied status proves to lenders that you took responsibility and cleared the balance. This puts you in a stronger position to access better interest rates and lower deposit requirements. Some high street lenders may even consider satisfied defaults over a certain age.

If your default is unsatisfied, the debt is still outstanding. While it is harder to get a mortgage with an unsatisfied default, it is not impossible. If the default is years old or for a very small amount, it may be overlooked. However, you may need a larger deposit, and have less access to competitive interest rates.

How much deposit do you need if you have a default?

You won’t necessarily need a massive deposit, although the age of your default and how well you’ve managed your money since can impact the amount you need.

• Older or smaller defaults (3 to 6 years old): If your default was more than 3 years ago, or was for a minor outstanding bill, you may only need a standard deposit of around 5% to 10%

• Recent or larger defaults (Within the last 2 years): If the default was registered in the last 2 years, or was for a significant amount of money, you will likely need a specialist lender and a deposit of around 15% to 20%

Will having a default impact mortgage rates?

It can do, but it may not be as expensive as you think. Again, it depends on how old the default is, how much it was for, and whether it has now been paid off. If your default is recent or unsatisfied, you’re more likely to need a specialist lender, who will generally have higher rates than high-street banks.

However, a default does not lock you into high interest rates forever. If you secure a fixed-rate mortgage at a slightly higher rate for two or three years, this can act as a powerful credit-rebuilding tool, assuming you pay on time.

By the time you’ve come to the end of the deal period, your default will be much older, or potentially have dropped off your credit file if it’s been more than six years. At this point you can remortgage onto a lower, standard market rate.

Getting a joint mortgage with defaults

If one applicant has good credit, then this could strengthen the application, compared to an applicant with a default borrowing alone. Mainstream banks usually assess the application based on the lowest credit score, meaning a default on one person's file can lead to an automatic rejection for both of you. However, specialist lenders look at the application more broadly.

Having a partner with a strong credit history and a stable income could significantly improve your overall household affordability. This extra financial security makes specialist lenders feel more comfortable offering you a mortgage. A joint application with one clean credit record may also allow you to access better interest rates and lower deposit requirements than if the person with the default were applying on their own.

If you or your partner have a default on your file, you don't need to apply separately or hide your financial past. We can guide you toward the specialist lenders who appreciate the strength of your combined financial position.

Our expert says

Which Lenders Accept Mortgages With Defaults?

Here is a snapshot of some lenders who are more understanding of defaults, and a general idea of their criteria:

Note: Lending criteria changes frequently, these were correct at the time of writing but always check with your broker or lender at the time of application.

How to apply

If you have a default and are ready to buy a home or remortgage, follow these simple steps:

1. Download your credit report: Knowing where you stand avoids nasty surprises at application. We can also use this to help steer you towards the lenders that can actually help you. Correct any mistakes on your report and ensure closed accounts are removed
2. Pay down your debt: If possible, repay the debt that led to the default. You have more options with a satisfied default than an unsatisfied one
3. Stay in the green: Maintain a strong credit file in the run up to your application (6 months if possible) by ensuring you pay bills on time and stay out of your overdraft
4. Put an embargo on credit: Don’t take out any credit cards, loans, or other types of credit, such as Klarna or Paypal before you apply
5. Speak to a specialist broker: At Echo, we deal with borrowers with defaults every day. We will listen without judgment and prepare your application for lenders with greater flexibility of your circumstances

Work with an expert mortgage broker

At Echo Finance, we know that credit issues can be an embarrassment, but there’s no judgement here. Life is complicated, mistakes happen, and most of them can be overcome.

Our team of experts will work with you to understand your individual circumstances and find a mortgage that meets your needs. We'll provide support and guidance throughout the application process, so you can be confident that you're making the best possible decision for your situation.

Ready to find a lender who will say yes? Get in touch today. Our initial chat is completely free, friendly, and always non-judgemental.