Paying off a monthly sum for a mortgage can be a hard task to meet for most of us. Defaults on mortgages can be a significant hurdle on the path to homeownership. However, you don’t need to lose hope. Having a default on due payments doesn't necessarily disqualify you from obtaining a mortgage. In this blog, we delve into the ‘hows’ and ‘whys’ a defaulted payment can affect your application for a mortgage.
The impact of a default and what it means to you
A default occurs when you fail to make the required payments on a loan or credit agreement within the said period. The failure to keep your word and carry out the required payment will then remain on your credit report for a number of years or until you pay up the dues. This will negatively impact your credit score. When it comes to getting a mortgage, lenders use a borrower's credit score as a benchmark to assess the level of risk when granting a loan. Generally, a lower credit score will paint a dire image of your ability to keep a commitment, which could eventually lead to the lender rejecting your application.
Overcoming a default should be your highest priority if you’re looking to get another mortgage approved.
What should you do to get over your default?
You’ve defaulted on payments, what next? Your lender is probably your best friend when getting a mortgage. Telling them the honest reasons why you defaulted could be the best thing to do. Explaining your circumstances, especially as to why your income levels are not adequate to carry out the repayments, will allow your lender to see the ‘other side of the coin’, and possibly work out a flexible plan to resume your monthly repayments.
As in any loan, arrangements could be made at the discretion of the management of that establishment to even have alternate arrangements such as a rescheduling of the loan.
This means contacting your mortgage lender immediately and being open and honest about why you are struggling to pay the installments. Once they have a better understanding of your circumstances and can see that you are working to tackle your problems, they are more likely to be flexible.
Extensions for the period of payment, permitting a grace period which will enable you to gain a better income, or in a worse case scenario, you could even consider the remortgage of the property. These are some of the alternate solutions that a lender could work out.
On a side note, you may want to reconsider the remortgage option since it is more complicated when compared to the others. It would be wise to seek the assistance of a professional mortgage broker if you are thinking of a remortgage.
Getting a mortgage after defaulting
The first thing that is affected with you defaulting, is your credit score. Yes, it is very important to have a good credit score if you are trying to get your next mortgage approved. And once you’ve defaulted, the credit score will drop, making it harder for you to get your next mortgage. In addition, the credit report will stay on record for a period of 6 years in the UK. However, once you have paid all your dues, the default will come off the record and your credit score will gradually improve.
How lenders in the UK carry out their business varies, with each of them having their own set of criteria to evaluate your application. And this could work to your advantage especially if your lender is willing to be a bit more flexible on your credit score.
After you have settled your outstanding debts, the default will be identified as ‘satisfied’ on your credit report. This is a definite plus point when it comes to your lender, indicating your commitment towards paying off the loan.
Doing a double check before applying for your mortgage
By settling off your debt, you’ve done good. But doing another check on your credit report will not only help you keep track of your credit status, but also provide you with the assurance that you can apply for another mortgage despite having defaulted once before.
To obtain a copy of your credit report, you can download it from one of these 3 major credit bureaus in the UK - Experian, Equifax or Transunion.
Once you have downloaded your credit report, it would be a good idea to go through it and try to understand its contents. Lenders after all will rely on what is stated on the report before they decide on going ahead with the new mortgage.
Conclusion
Having to repay a mortgage is no easy task and it is easy for any of us to slip up and not carry out the monthly payments. The reasons can be as simple as a missed payment due to being tied up with work, or having to face an unforeseen circumstance such as a serious illness or an accident preventing you from working for a period of time. Whatever the reason, the end result would be classified as a defaulting of payments when it comes to not paying on time. However as we have discussed in this blog post, there is no need to lose hope. With you making informed decisions, your next mortgage is certainly a possibility.
If you think you need the services of a professional, don’t hesitate to contact our professionals at BVS Mortgages and Financial Services LTD. They will guide you on how to settle your debt, while ensuring you get the most out of your mortgage even after a default.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
* Approved by The Openwork Partnership on 23 May 2024
