Getting a Mortgage with Late Payments

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If you have late payments on your credit file, you may find getting a mortgage acceptance incredibly frustrating. Lenders view late payments as a negative mark on your credit file and view you as a higher risk to lend money to.

The good news is there are lenders who will still offer a mortgage if you have late payments and there should be options available to you, depending on how badly the late payments have damaged your credit report.

This guide tackles the issues of late payments and provides some helpful advice and solutions to getting a mortgage with late payments.

What Are Late Payments?

When you take out a financial contract you will have a schedule of payments. Ordinarily you will pay on the same date each month by direct debit.

If you miss a payment under the Direct Debit Guarantee, it is not automatically classed as a late payment. A lender will try to claim payment again within 7 days. If this second payment is missed, you will be in the ‘late payment’ category.

If you continue to miss payments on the schedule, multiple late payments may be registered on your credit file.

What is a Default?

If you fail to pay the money after it has become a late payment, the lender will attempt to keep the payment schedule with the late payment still outstanding – it will be recorded on their system as a missed payment.

Three or more consecutive missed payments can result in the lender placing your account in default. A default registration means the lender has serious concerns you are unwilling or unable to repay the debt.

While you can have multiple missed payments registered by a lender, you will typically only have one default registered by a lender.

On rare occasions if you have a defaulted, catch up on payments and then miss payments again you could have two or more defaults registered.

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Can I Get a Mortgage with Late Payments?

You can get a mortgage with both late payments and defaults registered on your credit file. There are criteria you will have to meet before a lender will consider your application. For example, a default from 5 years ago will have much less impact on a prospective mortgage than a default registered within the last week.

Likewise, late or missed payments are treated the same way, if your late payment was a long time ago, it will have less impact than recent late payments.

If you have late payments on your mortgage debt, it could have more impact than late payments on a mobile phone bill. This is why some late payments only have a minor impact on your overall credit score whereas others have a big impact.

Each lender will assess your credit report data differently and generate their own credit score for you. If your credit score meets a lender’s threshold, they will consider lending to you. If your credit score is below a lender’s threshold, they will not lend to you.

Remortgaging with Late Payments

The same rule applies for remortgaging as a mortgage application for a purchase. Your credit report will be checked and if it meets the lender’s requirement then you are likely to be accepted providing all the other information they request is approved.

A reason for remortgaging is the existing mortgage being unaffordable and that may be the cause for the late payments. In this circumstance it is best to keep up with mortgage payments as mortgage lenders that accept late payments will normally attach a higher interest rate to
reflect the risk of lending.

With mortgages (and loans in general), the higher the risk, the higher the interest rate. Ultimately, this means late payments on a mortgage with the hope of remortgaging to a lower payment is fruitless. You may find your remortgage more expensive than your current mortgage payments if you now have late payments.

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What Can I Do to Improve my Chances of Approval?

There are several actions you can take to improve your credit score and chances of getting a mortgage:

  • Check your credit score regularly
  • Ensure you make payments on schedule
  • Clear any problem debts
  • Complete a monthly budget to get on top of income and expenditure

Some of these are easier to achieve than others. With the right strategy, you can transform your credit score and get a handle of your finances.

Check Your Credit Score

There are a few free credit score checking services now available. These services tend to offer financial products to generate income for their business – don’t be tempted by this, instead make use of the core service they provide.

Most credit score services have a list of ways to improve your score, highlight problem areas and recommendations to help you manage your finances.

Ensure Payments Are Made on Time

Don’t be tempted to rebalance or juggle your debt by missing a payment here to cover a payment there. Be strict with yourself and make payments on time every time. Even if you have not done this in the past, keeping up with your monthly payments will slowly improve your credit score.

Clear Problem Debts

Do you have defaults or CCJs? Is there a debt you can’t manage? Call the lender and ask for a settlement offer. A settlement offer is at a lender’s discretion but if they allow you to settle a debt, it should be at a value less than the total amount outstanding.

A debt paid in full is your priority, but in absence of being able to clear a debt in full, a settled debt is much better for your credit score than an unpaid or ignored debt. However, try to steer clear of Individual Voluntary Arrangements (IVAs), Debt Relief Orders (DROs) or Bankruptcy as these Bad Credits are generally far more serious than late payments.

Complete a Monthly Budget

A monthly budget allows you to see exactly where you are spending money and cut back on unnecessary spending. There are now several reputable apps that track spending and savings to help you get to grips with your budget easily.

Speak to a Bad Credit Mortgage Specialist

Bad credit can hamper your chances of getting a mortgage with most lenders. There are a handful of lenders who will consider bad credit mortgage applications.

A mortgage broker will be able to match your credit profile to a specific mortgage lender and can help immeasurably with getting a mortgage.

And unlike most brokers, we provide completely free mortgage advice and aim to find you the best mortgage solution. Book your bad credit mortgage consultation with Boon Brokers today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.