Article by Jamie Mackenzie Smith - 12th February 2019

Can You get A Mortgage With A Default, CCJ Or Arrears?

Even for homeowners that have been through the process before, applying for a mortgage can be a lengthy and often stressful process. For anyone with a history of adverse credit, it can be even more disconcerting - especially if you’re not sure how negative information on your Credit Report such as late payments, Defaults, or Court Information might affect a potential mortgage lenders’ decision.

Where most other credit applications can be completed online with a some basic details in just a few minutes, mortgages involve a much deeper dive into your past and present personal finances and negative information has the potential to stop your house move at the first hurdle.

Adverse information on your Credit Report will unquestionably put off some potential mortgage providers, but it shouldn’t be the end of the road. There are lots of lenders that are specifically geared towards lending to people with a chequered Credit History.

The key thing is knowing where you stand and what information a lender is likely to see when you apply.

To see what information is being reported, and what is likely to be used by mortgage lenders to assess your application, you can check your Credit Report for yourself online. You can try checkmyfile free for 30 days and then for just £14.99 a month afterwards, which you can cancel online at any time.

What kind of information is reported?

Not all adverse information is treated equally. The type of negative marker can make a big difference to how it is interpreted, as well as how old it is and how many there are in relation to other and in particular, positive, information on your Credit Report.

Generally speaking, the presence of any adverse information at all on your Credit Report has the potential to affect your chances of being accepted, but the degree to which it will impact your application can vary greatly.

Lenders will typically rank adverse entries in the following order (from least to most serious):

  • Late payments – The odd missed payment on credit accounts isn’t unusual and shouldn’t be enough on its own to discourage most lenders, but it could affect your ability to access some of the cheapest deals. Many mortgage lenders will accept applications from people with one or two missed payments, as long as there is enough positive information to tip the balance.
  • Arrears – This happens when late payments start to get more frequent and run 2 or 3 consecutive months overdue. This could be interpreted as the first sign of financial distress and is likely to deter some lenders. The further an account goes into arrears, the more likely it is to have a negative impact on an application for a mortgage.
  • Arrangements to Pay - These are often well-intended, but in truth can seriously affect your ability to get credit, especially when recorded against a mortgage. Some lenders will view an Arrangement to Pay on a par with a Default in terms of negative information.
  • Defaults – The record of a default effectively shows potential lenders that you were unable to manage a credit account in the past to such an extent that your relationship with the lender broke down.
  • CCJs – The presence of a CCJ will start to seriously restrict your choice of lenders. It shows that a lender has had to resort to Court Action in order to recover a debt you owed and didn’t pay, even after a Default Notice was issued.
  • IVAs, Other Insolvency and Bankruptcies – This is about as bad as it gets in terms of the information that can show on your Credit Report. There are very few lenders that would even consider offering a mortgage to someone with an active IVA, and any bankruptcy would need to be discharged before applying became legally viable.

If you have entered Insolvency at any point, you are legally obliged to disclose this to a lender if asked, even if it has long since been cleared. This will later be checked against the information on the Bankruptcy and Insolvency Register, so it will almost certainly come back to haunt you if you’re not completely open and honest.

Age of the information

Most information remains on your Credit Report for a period of six years – whether that’s closed accounts, payment history, Court Information or any Insolvency.

When it comes to the impact that each entry can have on your overall creditworthiness, recency (how long ago it happened) also plays a part. A few scattered late payments from 5 years ago is likely to have less impact than it would if it was recorded in the last couple of months. That’s especially true if your Credit Report also shows a clean, consistent payment history for a long period since.

Because information is removed automatically after six years in most cases, it’s quite possible for your Credit Rating to improve significantly in a very short space of time - so knowing when that is due to happen (and verifying that it has actually been updated) is very important.

Be realistic about where you apply

Regardless of whether you choose to approach a specific lender or use a mortgage broker to find the best deal, knowing what potential lenders are likely to see before they conduct a Credit Check is key.

A good mortgage broker will know the market well and will be able to identify lenders that best suit you – and that capability becomes much more accurate if they have prior knowledge of your Credit Report. With checkmyfile, you can print and save a copy of your Report and share it with a broker if you want to get a head-start on the application.

Similarly, if you choose to go it alone, you can save time by gaining knowledge of what lenders can see on your Credit File to determine where you should apply.

Until you see what’s on your Credit Report for yourself, you can’t say for certain which bracket you’re likely to fall into. Once you know what kind of shape your Credit Rating is in, you’ll find it a lot easier to work out which lenders are most likely to want you as a borrower.

Play the waiting game if you need to

If you find that you have negative information recorded on your Credit Report, some potential mortgage lenders may ask for a larger deposit in order to consider your application. By doing so, a lender effectively reduces the Loan to Value (LTV) and in turn, the level of risk that you represent as a borrower.

For most people ‘using a bigger deposit’ is easier said than done, with today’s average house price now meaning increasing the size of your deposit by an additional 5% of the house value could cost upwards of £10,000.

When this isn’t an option, waiting for the negative information to either be removed from your Credit Report completely, or at least lose some of its significance as it gets older, might be the next best thing. Not only will it mean that you’ll stand a better chance of being accepted, but it will also give you more time to save for a bigger deposit and potentially improving your chances further if you choose to go that route.

OnlineMortgageAdvisor has a useful guide to the likely effect of deposit size and age of adverse information. It’s not an exact science, but does illustrate the point well.

The more information you see, the better

Mortgage lenders often draw on information from a variety of sources, which can include data from more than one Credit Reference Agency. Public information, including your presence (or lack of) on the Electoral Roll and Court Information are all held separately and can differ between agencies.

checkmyfile is unique in providing a Credit Report that includes data from the three main UK Credit Reference Agencies. You’ll be able to see your account Payment History as reported by Equifax, Experian and TransUnion as well as being able to compare the 'public data' held by each agency.

To summarise: prior knowledge of what information a potential mortgage provider is likely to see before you apply is crucial. Even if you do find negative information, you’ll be able to see when it is likely to be removed, what sort of impact it is likely to have and also that everything held about you is accurate.

If you haven’t already, you can try checkmyfile free for 30 days, then for just £14.99 a month, which you can cancel online, by phone or by email. You’ll get access to the UK’s most detailed Credit Report, with data from 3 Credit Reference Agencies and not just 1. If you have any questions about anything you find on your report, you’ll also get the full support of our team of UK-based professionally-qualified Credit Analysts.

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