A missed payment, default or County Court Judgment does not automatically prevent someone from obtaining a mortgage.
It can, however, affect which lenders will consider the application, the deposit required, the available interest rates and the evidence needed.
The phrase “adverse credit” covers many different circumstances. An isolated missed mobile-phone payment several years ago is not the same as recent mortgage arrears or a continuing debt arrangement. Lenders therefore look beyond a simple credit score and examine what happened, when it happened and how finances have been managed since.
What may be regarded as adverse credit?
Credit issues that could influence a mortgage application include:
- Late or missed payments.
- Defaults.
- County Court Judgments.
- Mortgage or secured-loan arrears.
- Debt management plans.
- Individual Voluntary Arrangements.
- Bankruptcy.
- Repeated use of an unauthorised overdraft.
- Payday or other high-cost short-term borrowing.
- Several recent credit applications.
- Outstanding balances that are close to their limits.
The effect depends on the lender’s criteria. Some lenders will not accept particular forms of adverse credit, while others may consider them subject to limits on their age, value, status and cause.
There is no single credit score that guarantees acceptance or automatically produces a rejection across the entire mortgage market.
What will the lender want to know?
A lender may examine several aspects of each credit event:
- What type of credit problem occurred?
- How much money was involved?
- When was it registered?
- Has the debt been settled or satisfied?
- Was it an isolated event or part of a pattern?
- Has further adverse credit occurred since?
- What caused the problem?
- How have accounts been managed recently?
- Is the proposed mortgage affordable?
- How large is the deposit or available equity?
Recency can be particularly important. Recent missed mortgage payments are likely to cause greater concern than an old, isolated problem followed by several years of well-managed credit.
Paying a default or judgment does not necessarily remove its history immediately, but marking it as satisfied can provide evidence that the debt has been addressed.
Check your credit reports before applying
Applicants should examine the information held by the main UK credit reference agencies before approaching a mortgage lender.
Equifax, Experian and TransUnion do not necessarily hold identical information because creditors may not report to every agency. Checking more than one report can therefore reveal accounts, address links or financial associations that do not appear elsewhere.
Look carefully for:
- Incorrect missed-payment markers.
- Accounts that do not belong to you.
- Wrong balances or settlement information.
- Duplicate entries.
- Outdated addresses.
- Unknown financial associations.
- County Court Judgments recorded against the wrong person.
- Evidence of possible identity fraud.
If information is inaccurate, contact the relevant credit reference agency and the organisation that supplied it. Corrections can take time, so this should be done well before a mortgage application is submitted.
Do not assume that a headline score tells the complete story. Mortgage lenders use their own underwriting systems and may assess the underlying credit history differently.
Be completely honest about previous problems
Attempting to hide adverse credit is unlikely to help.
A lender may identify undisclosed borrowing or credit events through credit searches, bank statements and application checks. A discrepancy between the application and the available evidence can cause delays, lead to rejection or create concerns about the accuracy of other information supplied.
Provide your mortgage adviser with the complete position from the outset, including dates, amounts, current balances and whether each debt has been settled.
Where there is a genuine explanation—such as illness, redundancy, business failure, bereavement or relationship breakdown—supporting evidence may help the adviser understand which lenders could consider the circumstances. An explanation does not override lender criteria, but it can form part of a properly prepared application.
Avoid making repeated applications
Submitting several mortgage applications in quick succession can be counterproductive.
Each lender has different criteria. Applying speculatively without first assessing those criteria can lead to avoidable credit searches and repeated rejection.
An agreement in principle is also not a mortgage guarantee. The lender may still assess the complete application, property, valuation, income and supporting documents.
The objective should be to identify a lender whose criteria appear suitable before a full application is made.
Can landlords obtain buy-to-let finance with adverse credit?
Potentially, but buy-to-let lenders still examine the individuals behind the application.
Although anticipated rent is an important part of buy-to-let affordability, the lender may also review the landlord’s personal credit history, experience, income, financial commitments and wider portfolio.
Where a limited company is applying, directors and significant shareholders may be credit-checked and asked to provide personal guarantees.
A recent mortgage default, arrears on another rental property or financial difficulty across the portfolio may be treated more seriously than a small historic issue unrelated to property borrowing.
Landlords should prepare accurate details of:
- Existing properties and mortgages.
- Rental income.
- Current monthly payments.
- Arrears or repayment arrangements.
- Company borrowing.
- Personal guarantees.
- The deposit and its source.
- The reason for any previous credit difficulty.
Strengthening the application
There is no instant method of repairing a credit history. However, applicants can improve the quality of their position by:
- Making every current payment on time.
- Bringing accounts up to date where possible.
- Reducing unsecured borrowing.
- Avoiding new credit before applying.
- Remaining within agreed overdraft limits.
- Checking electoral-register information.
- Correcting inaccurate credit-file entries.
- Keeping bank statements well managed.
- Building a larger deposit where practical.
- Preparing a clear explanation of previous problems.
Applicants should be cautious about businesses promising to remove accurate adverse information from a credit report. Accurate information cannot normally be erased simply because it makes borrowing more difficult.
Specialist mortgages may cost more
A lender willing to consider adverse credit may charge a higher interest rate or arrangement fee, require a larger deposit or impose tighter lending limits.
The complete cost should be examined, including:
- Interest rate.
- Product fee.
- Valuation and legal costs.
- Required deposit.
- Early repayment charges.
- Monthly payments.
- The likely refinancing position when the deal ends.
The immediate objective may be to secure an appropriate mortgage, but the longer-term plan matters too. A borrower should understand whether improved credit conduct could create wider refinancing options later and what it would cost to leave the initial product.
Speak to NetRent before applying
NetRent Mortgage Solutions works with DNA Financial Solutions to provide access to independent mortgage and finance advice for landlords, homeowners and property buyers.
If you are concerned that missed payments, defaults, a CCJ or another credit issue could affect your mortgage, speak to us before making an application.
Early discussion allows time to examine your credit history, understand the available lender criteria and prepare the necessary evidence.
Call 01352 721300 or email mortgages@netrent.co.uk.
NetRent does not provide legal advice. This article represents our general understanding of the landlord mortgage and rental property market and is provided for information only.
Mortgage availability, interest rates, fees and lender criteria can change. Individual circumstances vary, and previous credit problems may restrict the products available.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.