Getting a mortgage after a late payment
Getting a mortgage after a late payment is possible. When applying for a mortgage your credit report will be analysed by the lender. This is to help evaluate the lending risks which help the lender to calculate what interest rate they will be able to give potential customers. When it comes to late payments or missed payments on loans, credit cards or even a current mortgage it will show as an adverse event. Even if the late payment was a genuine oversight your credit report will not make a distinction between whether it was accidental or deliberate.
After the credit crunch, regulations that lenders must follow have been tightened up this means that the criteria used when assessing a mortgage application is also considerably stricter. A late or missed payment carries more negative weight than it once did with lenders.
Was it a late payment or a missed payment?
If the payment was made after you realised you had missed it or the payment was declined this is a late payment. If you failed to make the scheduled payment all together and any more subsequent payments this is a missed payment and will show differently on your credit report.
On your credit report anyone analysing this will see a figure 1 next to the payment, this is to indicate the payment arrived 1 month late. Sometimes if you pay a bill late it may not even show on your credit report, this will depend on the creditor and their procedures.
On your credit report a missed payment will show a different number each month the payment is outstanding, i.e. 2, then 3, then 4. The number will go on until you have satisfied the missed payment. At this point the number will freeze indicating this was when the missed payment was satisfied.
Will a late payment affect my mortgage application?
Yes, a late payment can have an impact on your mortgage application. Lenders use your credit report to find out how you manage money and what debt you currently have. If you have a history of late repayments this will raise a red flag and suggests to the lender there is an increased risk you may not be able to pay your mortgage payments on time. The increased risk may mean that the lender will decline your application. If this was some time ago or there was only one instance of a late repayment it may mean that the lender will require a larger deposit or charge a slightly higher rate of interest.
How long does a late payment affect my mortgage chances?
Any adverse event, late/missed payment will stay on your credit file for 6 years. This means that 6 years is the longest period of time a late payment can impact on your mortgage. The impact can from a declined application to affecting the terms you are offered. Speaking with a specialist broker who has knowledge of lenders who are more favourable to late payments is a good idea to ensure you are getting the best deal.
Missed payment process explained
When a payment is missed the creditor will report this to the credit referencing agencies. Once this happens it will start a process and record the length of time it takes for the account to be brought up to date. The length of time and the amount of the missed payment will be visible on your credit report and will stay on your credit report for 6 years after the date in which the late/missed payment was registered. Once an adverse event has been registered on your credit report it is likely to have an impact on any future applications that you make for credit not just mortgage applications.
If the missed payment is not rectified, depending on what the payment was for it can lead to repossession or a county court judgement. These kinds of adverse events will make it much more difficult for you to secure a mortgage.
How will a missed payment affect my mortgage chances?
As with late payments, a missed payment will be on your credit file for 6 years. Lenders will also look whether the missed payment was on unsecured debt (credit cards, phone bill or personal loan) or secured debt such as a mortgage or secured loan. A missed payment on secured debt will be taken more seriously.
The length of time that the adverse event happened will also be taken into account. If the missed payment was a long time ago and was rectified quickly and you have remained in good standing it will have less of an impact than if it was within the last 12 months.
The amount of missed payments will also be taken into account. If you have multiple missed payments this will have a bigger impact on your credit score and your perceived risk to the lender will be higher.
If your missed payments are in the past and you are in a good financial situation it is likely that you will find a lender willing to offer you a mortgage. If you are still repaying missed payments or have not caught up then it may be more difficult for you to secure a mortgage. It may be a better idea to catch up and ensure all missed payments are satisfied before trying to obtain a mortgage.
How can I improve my chances of getting a mortgage approved?
-Check Your Credit Reports
Make sure that you get a copy of your credit report from the three credit referencing agencies, which are Experian, Equifax and Callcredit. Each one may hold different information so it’s best to get all three to get the full picture.
Ensure you check all of your details are correct, if they aren’t you can ring up to get these amended. If you have any missed payments ensure that these are recorded correctly within your credit report.
If you are not registered on the electoral roll you should register as this will help to improve your credit report.
– Build up Your Good Credit
Make sure to pay all bills on time, you can even mark the dates in your diary to ensure you do not miss any. Taking out a credit card and spending a little and paying the full balance off each month will also help to build up a good credit history
–Save a Larger Deposit
If you have missed or late payments and they are quite recent then you may not be able to get a high Loan to Value. Customers with excellent credit history may be able to get up to 95% mortgages where as if you have adverse credit events you may only be able to get up to 70% of the house value. In general the large the deposit you have the better your chances of getting a mortgage offer.
Speak to a Specialist
The best advice for you is to speak with a specialist mortgage advisor that has the experience and knowledge within this area of the market. A specialist advisor will be able to choose the best lenders to put your application in front of giving you the best chance of being successful and not declined.
Speak with one of our specialist advisors today by either filling in one of our enquiry forms or giving us a call on 0161 209 6700.