If you are thinking about making a mortgage application, you will probably know that having a good credit score puts you in the best position to secure a good deal. However, we have been living through some very challenging times in recent years, and many people have been struggling with the soaring cost of living.
This has led to an increase in the number of people with missed payments, arrears, and defaults on their mortgages. According to the consumer group Which?, it is estimated that around 2 million households missed or defaulted on their mortgage or loan repayments in April this year.
As interest rates continue to rise and the average five year fixed rate mortgage climbs above 6%, the amount of people missing payments and falling in arrears is likely to rise. As you are probably aware, falling behind on loan repayments negatively affects your credit score.
A poor credit rating may make it more difficult for you to borrow money in the future, because lenders will consider you to be a high risk customer. However, some issues are considered more serious than others, and it’s helpful to understand what the terminology means and exactly how it might directly impact on your personal situation.
A late payment happens when a bill or loan repayment is not paid on time, but it is repaid in full at a later date. It’s a common occurrence and may simply be the result of an oversight. If the payment was made within 30 days of the due date, this should not be recorded on your credit file and it won’t be considered as going into debt.
However, payments made more than 30 days late will be considered missed payments, and will be reported to the credit agencies. This may affect your ability to get a mortgage deal in the future. However, some lenders have more flexible attitudes than others.
They may want to know the reason for the late or missed payment, and will look at how much money was involved, how long it took you to repay it, how long ago it occurred, and if it was a one-off event or if it has occurred repeatedly.
If the payment was for a secured loan such as mortgage or car finance, this will be regarded as a more serious issue than if it was for a an unsecured loan (ie. one that is not secured against an asset, such as a phone contract or overdraft). A late payment that occurred over six years ago will no longer be on your credit report.
Missed payments are bills and repayments that have not been met. It is still possible to avoid going into arrears if you make the repayment in full if you pay in full within 60 days. However, if more than one payment is missed and you do not contact the lender to discuss the situation within 60-90 days, then you will be issued with a default notice.
Your account will be in arrears and the default notice will give you 14 days to meet the missed payment. If you can’t or don’t meet the repayments within this time, your account will default and it will be recorded on your credit file. If your account has defaulted, then the lender is entitled to take a number of actions in accordance with the Consumer Credit Act.
The creditor may still be agreeable to you paying off the debt in affordable amounts, but they are not legally obliged to consent to this. They have the option of passing the debt on to a debt collection agency, or taking legal action. They may also take action against you to repossess the asset, including your home.
Repossession is considered to be a last resort and a lender will usually give you another chance to meet the repayments. They may agree to give you extra time if you have been through a period of illness or redundancy, but now expect your financial circumstances to improve, for example.
A default will stay on your credit file for six years, and it will be regarded as a serious issue by future potential lenders. However, if you have a reasonable explanation for the situation, such as losing your job or being unable to work due to illness or injury, then there are lenders who will be willing to consider your application.
Even if the reasons for your situation are more complex, there may still be options available to you. If you would like to talk to a mortgage broker for defaults, please contact us today.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK. The overall cost for comparison is 4.8% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration.
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