Remortgage With Defaults

Can You Remortgage With Defaults on Your Credit File?

Yes, it is entirely possible to remortgage with defaults on your credit file. While defaults will reduce the number of lenders available to you, there is a substantial specialist lending market in the UK that caters specifically to borrowers with adverse credit histories.

A default is recorded on your credit file when a lender considers your account to be in serious breach of the original agreement, typically after you have missed three to six consecutive payments. The default remains on your credit file for six years from the date it was registered, regardless of whether you subsequently pay off the debt.

When assessing a remortgage application with defaults, lenders will consider several key factors:

• The age of the defaults - Older defaults are viewed more favourably than recent ones, and many lenders become more flexible once a default is more than two or three years old
• Whether defaults are satisfied or unsatisfied - Satisfied defaults, where the debt has been fully repaid, are treated much more leniently by most lenders
• The number of defaults - A single default is viewed very differently from multiple defaults across several accounts
• The total value of defaults - Smaller defaults are generally less of a concern than larger ones
• The type of credit that was defaulted - Defaults on utility bills or mobile phone contracts may be treated less seriously than defaults on mortgages or secured loans

It is important to understand that not all defaults are equal in the eyes of lenders. A single small satisfied default from four years ago will have far less impact on your remortgage options than multiple large unsatisfied defaults registered within the past year.

The interest rates available to borrowers with defaults will typically be higher than those offered to applicants with clean credit files. However, even at a higher rate, remortgaging can still represent significant savings if you are currently paying your lender's standard variable rate, which is often substantially above the rates available in the specialist market.

How Defaults Affect Your Remortgage Options

The impact of defaults on your remortgage options depends on a combination of factors, and understanding these can help you manage your expectations and plan your application effectively.

Time since the default was registered. This is one of the most important factors. Most high street lenders require a completely clean credit file, but many specialist lenders will consider applications where defaults are more than twelve months old. As time passes, more lenders become available and rates typically improve. Once a default is more than three years old, a wider range of products opens up, and after six years the default drops off your credit file entirely.

Your loan-to-value ratio. The amount of equity in your property plays a crucial role. Borrowers with lower LTV ratios have access to better rates and more lenient criteria. If you have a significant amount of equity, perhaps 40% or more, some lenders may be willing to overlook certain credit issues that they would not accept at higher LTV levels.

Your current financial behaviour. Lenders want to see that your financial situation has improved since the defaults were registered. Evidence of responsible credit management in recent months and years, such as maintaining current accounts in good order and keeping up with existing commitments, can significantly strengthen your application.

The reason for the defaults. While lenders do not always ask for explanations, some specialist lenders will take into account the circumstances that led to the defaults. Events such as redundancy, illness, divorce or bereavement may be viewed more sympathetically than defaults arising from general financial mismanagement.

Your income and affordability. Regardless of your credit history, all lenders regulated by the FCA must carry out thorough affordability assessments. You will need to demonstrate that you can comfortably afford the new mortgage repayments alongside your other financial commitments. Strong, stable income can help offset concerns about your credit history.

It is worth noting that the specialist lending market has grown considerably in recent years, with more lenders entering the space and competition driving improvements in both criteria and pricing. This means that borrowers with defaults often have more options available to them today than they would have had even a few years ago.

Steps to Remortgage With Defaults

If you have defaults and want to remortgage, taking a structured approach can significantly improve your chances of success and help you secure the best possible deal.

Check your credit report thoroughly. Before doing anything else, obtain copies of your credit reports from Experian, Equifax and TransUnion. Review them carefully to ensure all the information is accurate. Check that defaults are correctly recorded with the right dates and amounts. If you find any errors, dispute them with the credit reference agency as incorrect information could be unnecessarily harming your application prospects.

Understand your current position. Calculate your current loan-to-value ratio by getting an up-to-date valuation of your property and checking your outstanding mortgage balance. Know exactly how much you owe, what your current rate is, and what your monthly payments are. This information will help any adviser assess your options quickly.

Address any outstanding defaults if possible. If you have unsatisfied defaults, paying them off before applying can open up significantly more lender options. While satisfying a default does not remove it from your credit file, many more lenders will consider applications with satisfied defaults compared to unsatisfied ones.

Build a positive recent credit history. If possible, start rebuilding your credit profile well before you plan to remortgage. Simple steps like registering on the electoral roll, keeping existing credit accounts in good order, and using a credit builder card responsibly can demonstrate improved financial behaviour.

Speak to a specialist mortgage broker. This is arguably the most important step. A broker who specialises in adverse credit mortgages will have detailed knowledge of which lenders will accept your specific circumstances and can present your application in the most favourable light. They can also help you avoid making unnecessary applications that could further affect your credit score.

Prepare your documentation. Gather all the documents you are likely to need, including proof of income, bank statements, your existing mortgage statement, identification and any evidence that helps explain or contextualise your defaults. Being well-prepared demonstrates organisation and can speed up the process considerably.

Interest Rates and Costs When Remortgaging With Defaults

One of the most common concerns for homeowners with defaults is the cost of remortgaging. While it is true that rates for borrowers with adverse credit are higher than standard rates, the overall picture is often more positive than people expect.

Interest rates for remortgages with defaults vary widely depending on the severity of the credit issues, the LTV ratio, and the specific lender. As a general guide, you might expect to pay somewhere between 1% and 5% above the rates available to borrowers with clean credit, though this range can be wider or narrower depending on individual circumstances.

The factors that most influence the rate you will be offered include:

• Loan-to-value ratio - Lower LTV ratios attract better rates, with significant improvements often available below 75% and again below 60%
• Severity of credit issues - A single small satisfied default will attract a much better rate than multiple large unsatisfied defaults
• Time since the defaults - Rates generally improve as defaults become older
• Income and affordability - Strong, verifiable income can help you access better deals
• The overall strength of your application - Factors like stable employment, low debt-to-income ratios and a track record of recent responsible borrowing all help

When comparing costs, it is essential to look at the total cost of the new mortgage over its term, including any arrangement fees, valuation fees, legal costs and any early repayment charges on your existing mortgage. In many cases, even a higher rate mortgage can save you money if you are currently on a punitive standard variable rate.

It is also worth considering that a remortgage with defaults does not have to be permanent. Many borrowers use a specialist remortgage as a stepping stone, securing a deal now and then remortgaging again in two or three years once their credit file has improved and the defaults have had more time to age or drop off entirely.

Types of Defaults and Their Impact on Remortgaging

Not all defaults carry the same weight with mortgage lenders. Understanding how different types of defaults are viewed can help you assess your own situation and set realistic expectations.

Mortgage defaults are viewed as the most serious type of default by the vast majority of lenders. A default on a mortgage suggests that the borrower failed to maintain payments on a secured debt, which naturally raises concerns about future mortgage repayments. Having a mortgage default will significantly reduce your lender options, though specialist lenders do exist that will consider these cases.

Secured loan defaults are also treated seriously, as they involve debt secured against property. However, they are generally viewed slightly less severely than mortgage defaults themselves. The amount of the default and whether it has been satisfied are important considerations.

Unsecured loan and credit card defaults are common and are generally treated less seriously than defaults on secured lending. Many specialist lenders have quite generous criteria for these types of defaults, particularly if they are satisfied and a reasonable amount of time has passed.

Utility and telecommunications defaults often arise from billing disputes or overlooked final bills when moving house. While they still appear as defaults on your credit file, many lenders view them less critically than defaults on mainstream credit products. Some lenders will disregard utility defaults entirely, particularly if they are small in value and have been satisfied.

Mail order and catalogue defaults are relatively common and are generally treated similarly to credit card defaults. The key factors are the value of the default, whether it has been satisfied, and how long ago it was registered.

Regardless of the type of default, the overall pattern of your credit behaviour matters enormously. A single isolated default on an otherwise clean credit file tells a very different story from a pattern of multiple defaults across various types of credit. Lenders look at the complete picture when making their decisions.

Using a Specialist Broker for Remortgages With Defaults

Working with a specialist mortgage broker is strongly recommended if you have defaults on your credit file. The adverse credit mortgage market is complex and constantly evolving, and a good broker can make the difference between a successful application and a frustrating series of rejections.

A specialist broker will have in-depth knowledge of the specific criteria used by different lenders. This is particularly important in the adverse credit market, where lender criteria can vary enormously. One lender might decline an application that another would happily approve, and only a broker with detailed market knowledge can navigate these differences effectively.

Brokers who deal regularly with adverse credit cases will also understand how to present your application in the best possible light. They can help you compile supporting documentation, explain the circumstances behind your defaults, and ensure that the lender receives a complete and well-structured application. This can significantly improve your chances of approval.

Another key advantage of using a broker is that they can carry out a soft search of your credit file before making any formal applications. This allows them to assess your position without leaving a footprint on your credit record. Making multiple unsuccessful applications directly to lenders can damage your credit score further, making it even harder to secure a deal.

When choosing a broker, look for one who is authorised and regulated by the Financial Conduct Authority and who has specific experience with adverse credit mortgages. Ask about their fee structure before proceeding, as some brokers charge a fee for their services while others are paid entirely by commission from the lender. Make sure you understand exactly what you will be paying before committing.

A good broker will also be honest with you about your prospects. If your situation means that remortgaging now is not viable, a reputable broker will tell you so and may be able to advise on steps you can take to improve your position for a future application.