What Is a Default and How Does It Get Recorded?
A default is registered on your credit file when you fail to make payments on a credit agreement and the lender considers the account to be in breach. There is no fixed rule for when a default is issued, but it typically happens after three to six missed payments. The lender must send you a default notice giving you 14 days to bring the account up to date before formally registering the default.
Defaults can be applied to any type of credit — mortgages, credit cards, personal loans, mobile phone contracts, and even utility bills. A mortgage default is generally viewed more seriously by lenders than a default on a smaller account such as a phone contract.
Once registered, a default remains on your credit file for six years from the date of the default, not the date it was settled. After six years, it is automatically removed.
How Defaults Affect Your Remortgage Application
Defaults signal to lenders that you have previously struggled to meet financial commitments. This makes mainstream lenders cautious, and most high-street banks will decline applications with recent defaults. However, specialist lenders take a more nuanced view and will consider:
- The type of default — a default on a mortgage is treated more seriously than one on a utility bill or catalogue account
- The amount involved — a small default of a few hundred pounds is viewed differently from one involving thousands
- Whether it has been satisfied — settling the defaulted account shows you have addressed the problem
- How old the default is — defaults over two years old are generally treated more leniently
Having multiple defaults will restrict your options further than a single isolated incident. Lenders look at the overall pattern of your credit behaviour, not just individual entries.
Strategies for Remortgaging with a Default
The most effective step you can take is to settle any outstanding defaults before applying. A satisfied default, while still visible on your file, demonstrates that you have resolved the debt. Keep all correspondence and proof of payment as your broker or lender may request evidence.
If your default is relatively old (more than two to three years) and your credit record has been clean since, your options improve considerably. Some specialist lenders treat older satisfied defaults almost as if they were not there, particularly when the borrower has strong equity and a stable income.
Consider speaking to your existing lender about a product transfer. This route avoids a full credit check and affordability assessment, meaning your default may not prevent you from moving to a new deal. Product transfers are particularly useful when your default is recent and would cause problems with a new lender.
Costs and Rates with a Default on File
Expect to pay higher interest rates than borrowers with clean credit files. The premium varies widely depending on the nature and age of the default and your LTV, but rates from specialist lenders are typically 1% to 4% higher than the best mainstream deals.
Arrangement fees may also be elevated, and some specialist lenders charge higher early repayment charges (ERCs). Compare the total cost of the deal over its full term — including all fees — rather than focusing on the headline rate alone.
Working with a broker who specialises in adverse credit can help you find the most competitive option for your specific circumstances. They can often negotiate on fees and have access to exclusive deals not available directly to borrowers.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.