Being told your credit history is going prevent you from getting a mortgage when you have your heart set on a property can be such a devastating thing to hear. Whether you've heard it directly from a lender or someone you know, previous credit problems aren't always the end of the road when it comes to obtaining a mortgage.
There can be a variety of issues that might be blocking the road when it comes to getting a mortgage from the high street lenders some of these may be but aren't limited to:
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Low credit score
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Missed payments
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Defaults
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CCJ's
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Bankruptcy
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IVA's
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Debt Management Plans
We're going to look a little more into each of these but rest assured, there are lenders to fit most circumstances and knowing the right time to apply for a mortgage if you have suffered any financial hardship in the past is key when it comes to applying.
Low Credit Score
A low credit score is one of the more common reasons a lender might reject an application you make for a mortgage. A low credit score may be the result of a combination of the below factors or it may simply be that you have had very little in the way of previous credit. If we look at the latter reason, it is unlikely you will find yourself in a position you are unable to obtain a mortgage. While some high street lenders do use credit score as a test when performing their initial assessment, there are plenty of high street lenders that don't and this shouldn't stop you from aiming for some of the lowest rates available on the market should that fit your mortgage aims, objectives and any other criteria. If a low credit score is the result of one of the other below factors, we need to look at how this might affect what lenders can be considered.
Missed Payments
Missed payments can occur for a multitude of reasons. Two more common reasons may be that you might have seen financial hardship for a brief period or you might have moved address and not updated your lender who then began sending letters to the wrong property regarding your account. Whatever the reason, missed payments alone usually do not mean the end of the road. It's important when assessing which lenders will consider missed payments to look at a few main points:
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How long ago a payment was missed?
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You may have only missed one payment, not realised and left the account one payment behind for several months before the lender contacted you to make you aware and bring the account up to date.
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How far in arrears the account went?
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Have you missed more than one payment? If so, what were the number of payments missed?
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What was the reason?
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Some lenders take this into consideration when underwriting.
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How long ago did you miss credit repayments?
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The further back the missed payments the more lenders you can start to approach. A lender will be more willing to look at a credit file with a missed payment from 3 years ago compared to one with a missed payment 3 months ago.
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Was the missed payment on a secured or unsecured debt?
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Lenders will want to know whether the missed payment occurred on something like a credit card or a mortgaged property
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When lenders assess missed payments, criteria generally becomes pretty black and white. Their criteria often state what they will and won't consider so understanding the points above is paramount before making any applications.
Defaults, CCJ's, IVA's and Debt Management Plans
Defaults, CCJ's and Debt Management Plans begin to fall under slightly more scrutiny by lenders. Again, none of these issues completely prevent you from being able to apply for a mortgage, however, more care needs to be taken when making a decision of which lenders to apply to. Like with missed payments criteria is usually very black and white and a lender will either consider the application or they won't. The main points you need to consider with defaults and CCJ's to meet lenders criteria will be:
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When was it issued?
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How much was it for?
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Has it been settled?
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If so, when was it settled?
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How many defaults or CCJ's are on your credit report?
IVA's and Debt Management Plans are slightly different. With either of these a lender will look at:
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How long has it been in place?
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Has the repayment schedule been adhered to?
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What are the repayments?
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How long is remaining on the IVA or Debt Management Plan?
Once we've got a grasp of these points we can start to match up the circumstance to the criteria.
Bankruptcy
When it comes to applying for a mortgage having declared bankrupt, you need to wait until you are discharged before being able to apply for a mortgage. This process usually takes 12 months but sometimes can happen sooner. Once you've been discharged you're free to apply for a mortgage. That said, you might find it difficult to find a lender willing to consider your application straight away, however, as more time passes you will become more likely to find a lender that may consider an application.
When it comes to applying for a mortgage post-bankruptcy, most lenders will usually be looking for a strong deposit and will also likely charge rates above those normally found on the high street, this is especially true for cases where the bankruptcy was more recent.
Subject to a good, well-maintained credit report, most lenders start to see you as no different than anyone else after about 4 to 5 years since the date you were discharged. At this point, you can start to consider being able to apply for mortgages with lower deposits and more standard interest rates.
For more information check out some of our other pages, calculators or blogs
David Williams trading as Greymere Finance (FCA No.944564) is an Appointed Representation of Julian Harris Mortgages Ltd (FCA No.304155) which is authorised and regulated by the Financial Conduct Authority No. 304155
Looking for a mortgage broker in Chester, Wrexham, Flintshire or Denbighshire? Greymere Finance offers mortgage advice both locally and nationally.
Contact us to get the best rates on 01244 267682