Mortgage lenders find it easier to lend to people who have spotless credit reports, that’s not necessarily fair, but it’s sadly true in the majority of cases. If you have bad credit, are self-employed or just don’t fit the mould, the mortgage world can be less accommodating than if you had a perfect credit history. And this is especially true if you have been through a repossession.
This guide will help you to understand how a repossession affects your ability to get a mortgage, what factors influence a lender’s decision to grant you a mortgage and how you can build up your credit rating in preparation for your application.
Being faced with a house repossession can feel incredibly isolating. But you’re not alone. From January to March 2020 there were 1,036 recorded repossessions in the UK. The financial uncertainty that Coronavirus has had in the UK means sadly more and more people are experiencing credit issues. If you are about to experience a repossession, it's vital to know what the process involves.
A house repossession involves the mortgage lender taking ownership of the house. It occurs when remortgage payments haven’t been made. Repossession is often the last resort for lenders. They’ll typically only consider repossession if you’ve missed three months of payments.
If you’re late to make a payment, lenders will often allow up to 15 days before they contact you. If you’re worried about missing a mortgage payment, speak to the lender. Often, they can help by providing a payment holiday or switching to an interest-only mortgage.
Here’s the typical step-by-step repossession process:
Firstly, the repossession process involves the lender contacting you about the missed payments.
If the debt is not received or a payment plan isn’t possible, a possession order is then filled by the lender.
A court date will then be confirmed, and a hearing will take place. The decision will be made in court.
There are two different types of possession orders. An outright order involves a date for you to vacate your home and a suspended order allows you to stay living in your home while paying a fee on top of your monthly mortgage payments. If you do not vacate your home by the date agreed in your outright order, the court will carry out an eviction. Likewise, if you break the terms of your suspended order, bailiffs can evict you.
An eviction can only take place if the lender applies directly to the court and provides you with a 14-day eviction notice. If a lender does evict you, they will sell your home to pay off your mortgage debt, and you will receive any money which is left over. Sometimes the sale of the property does not cover the amount owed. This is called a mortgage shortfall. In that case, there are different options to help you pay off the remaining debt, including a payment plan, lump-sum payments and bankruptcy.
Getting a mortgage can be daunting, regardless of your financial history. However, getting a mortgage after having faced a repossession can be a little more challenging. Most mortgage lenders and mortgage brokers lenders only deal with people who have good credit and no adverse financial history. Most lenders will decide not to lend to you if you’ve had a repossession, even if it was over six years ago and therefore has been removed from your credit file. But not every mortgage lender is the same. Some specialist mortgage lenders are willing to help you get a mortgage, even after a repossession.
A mortgage advisor is the best person to help you find specialist mortgages from specialist lenders. Read this Guide: 6 reasons why you should use a mortgage broker to find out more. Or get in touch to get a specialist broker who’ll be able to advise you on your options for getting a mortgage after a repossession.
A repossession will stay on your credit report for six years. This starts from the date of the first missed mortgage payment. Once the six years is up, the repossession will be removed from your credit report.
You should always let your mortgage lender know about a past repossession, if you don't let them know, your mortgage application could be cancelled. Most lenders have strict policies that automatically reject applications from those who have been repossessed. It’s only specialist lenders who specialise in bad credit mortgages who are willing to work with people who have had a repossession in the past.
To assess your suitability for a mortgage, lenders will look into your financial history. They do this to understand if you are still a high-risk borrower. These are the factors a lender will consider:
The date of repossession
The reason for repossession
The amount owed
The mortgage debt
Your credit report
Who was the lender?
This will be one of the first questions a lender will ask you. As a general rule, the more recent the repossession, the more challenging it may be to secure a mortgage. This is because lenders will view you as a higher risk.
The date of repossession will also impact the mortgage rate and deposit you will need. The more recent your repossession, the higher the interest rate will likely be, and the larger the deposit required. Interest rates are often the highest three to four years after a repossession. If your repossession occurred over four years ago, you could be offered market leading rates.
Less than 1 year ago:
Sadly, getting a mortgage less than a year after a repossession is exceptionally rare, even specialist lenders have criteria that means they won’t offer you a mortgage unless the repossession was over 12 months ago.
1-2 years ago:
Some specialist lenders may be willing to offer you a mortgage. You can expect to need a deposit of around 30-40%.
2-3 years ago:
More lenders will be open to lending to you. The deposit you’ll need will be around 25%. The best mortgage lenders if you’ve had a repossession in the last 2-4 years are Kensington and Bluestone Mortgages. Both these lenders are available through intermediaries only. That means you’ll need a specialist mortgage advisor to get a mortgage from them for you. Get in touch with us and we’ll match you to the perfect mortgage advisor for you.
3-4 years ago:
After three years, you will be seen as ‘lower risk’ to mortgage lenders. This means that you will have more options available to you and will be required to have a deposit of around 15-25%.
4-5 years ago:
You will need around a 10-20% deposit and will be in a position to be offered market leading rates.
5-6 years ago:
After five years, you need to have a 10-20% deposit.
The reason for repossession is one of the most important factors a lender will consider. Repossessions occur for a variety of reasons, so it’s important to find a lender who understands your specific situation. Specialist mortgage brokers have experience in specialist areas like repossession mortgages and will know the most suitable lender for your application and how best to present your case.
The more information you have as to why the repossession happened, the more likely a specialist lender is to accept you. Since some lenders are more lenient to those who have faced a repossession because of fraud or ill health, background information and evidence can help a lender access your case.
Often lenders will look more favourably on your application if the repossession involved a single mortgage. If multiple properties were involved it can be a little more challenging, but not impossible. If your repossession was very high value, for example, millions of pounds, it will be a more costly process to get a mortgage. But, hope is not lost, every lender has a different set of criteria, and many are willing to grant you a mortgage after a large repossession.
Fewer lenders will accept your application if you have a mortgage shortfall. To achieve the most competitive offers, it is suggested that you pay off these debts before applying for a mortgage. If this is impractical, speak to a specialist mortgage advisor to find out the options to best suit you.
Your credit behaviour before and after your repossession is an important factor in whether lenders are willing to grant you a mortgage. Typically a mortgage is the last payment that borrowers default on. This means there may be other credit issues including missed payments, County Court Judgments (CCJs), an individual voluntary arrangement (IVA) or a debt management plan (DMP). Read more in this Guide: Does a bad credit score mean you can’t get a mortgage?
If you’ve had previous repossessions, it means that it could be more difficult to secure a mortgage. Want to discover how credit can affect how much you can borrow on a mortgage? Use our bad credit calculator.
However, If you have been repossessed and have no other credit issues, you are more likely to receive a better interest rate. Lenders will also look on you favourably if you have financially recovered since the repossession.
Keeping up with loan repayment instalments and credit card balances is a great way of showing that you are in a financially stable position. Lenders are more likely to offer you credit if you can demonstrate that you’ve overcome previous financial problems. Rebuilding your finances suggests to lenders that you are now less likely to default on your new mortgage payments.
Many mortgage providers are part of the same banking group. This means that while they trade under different names, they are under the umbrella of one parent company.
If you had a property repossessed by one mortgage provider, it is unlikely that another member within the same group will accept you. For example, First Direct, HSBC and M&S Bank are all owned by HSBC. If you are repossessed by First Direct, it is unlikely that HSBC and M&S Bank will accept your mortgage application.
A mortgage broker is the best way to ensure that your mortgage application is sent to the correct lender. Take a look at our hand Guide: Bad Credit Mortgage Lenders.
The majority of mortgage lenders won’t lend to you if you’ve had a repossession in the past. Even if it’s over six years ago and not on your credit report anymore. However, specialist lenders can be more flexible with their lending criteria.
The two best mortgage lenders after a repossession are:
Kensington Mortgages: Kensington is a flexible specialist lender who’ll consider people with complex situations and adverse credit. They’ll consider you if you’ve had a previous repossession and might still lend even if you have debt outstanding, as long as a payment plan is in place and payments have been maintained for over 24 months.
For example, if someone has a property repossessed by a lender, and the lender sells the house and for £130k, the outstanding debt is a total of £150k with interest, missed payments and associated costs. The amount owed to the lender is £20k.
If the client sets up a repayment plan with the lender for £200 per month to cover the shortfall, Kensington can consider this type of application if the payment arrangement has been maintained and the commitment of £200 per month is factored into the affordability for the new mortgage with Kensington. But most lenders would not consider a mortgage application until the debt is cleared to the original lender.
Bluestone Mortgages: Bluestone Mortgages are another flexible specialist lender who understand that just because you have adverse credit in the past, doesn’t mean you will in the future.
They’ll consider applications from people with a repossession in the past as long as you meet their criteria. Their criteria around repossession is:
• They’ll consider cases with repossessions as long as the repossession was over 12 months ago. However, they have a cap at 4 missed payments on secured loans in the last 24 months and won’t accept applications if you have more than that.
• If you have an outstanding default on a secured loan, it has to be paid off before completion.
• There cannot be any outstanding debts relating to the repossession.
Finding alternative ways to finance a car is a popular option. Many companies offer payment plans which allow you to lease a car without paying the outright bill. As you are in a payment plan, the car is not legally yours until all payments are made. If you miss payments or breach the agreement for your vehicle loan, a lender has the right to repossess your car. Depending on the agreement with the vehicle lender, two or three missed payments can cause a repossession.
A car repossession will affect your credit rating. Lenders could view you as a high-risk borrower because you have had financial difficulty in the past. This means that they will require proof that you are now financially stable and able to make your mortgage payments. However, having a car repossessed isn’t viewed as seriously as a home repossession.
A lender will conduct a loan affordability assessment before they accept your mortgage application. This involves lenders analysing your financial history to decide whether you can meet the terms of the loan. Want to know how much you can afford to borrow? Use our handy mortgage affordability calculator.
If you have had a repossession, your case is likely to be reviewed in more detail. The lender wants to ensure that you are at low risk of defaulting on mortgage payments. This means that the more evidence you can supply, which proves your suitability, the better.
The most important information that a lender will look at is the date of your repossession. The more recent the repossession, the higher the rate offered to you.
Lenders will calculate how much you can afford to borrow by looking at your income and outgoings on a case-by-case basis. Each lender has its own criteria for accessing your affordability. Generally, they will assess your proof of income, your credit history and your current financial situation. The amount you can borrow is capped at 4.5x your income.
1-3 years ago:
If your repossession was less than three years ago, lenders generally offer a maximum of around 3x your income.
3-6 years ago:
You could potentially borrow 4x your annual income.
6 years +:
If your repossession occurred over six years ago, you will get a higher loan to value mortgage and will receive up to 5x your income.
There are many different ways to improve your chances of getting a mortgage. Here are a few different options to consider after a repossession:
Build up your credit rating
Prepare for your application
Wait it out
Save for your deposit
Speak to a specialist
After your repossession, it's always a good idea to build up your credit score. Generally, the higher your credit score, the easier it is to get approved for a mortgage. To do this, pay off outstanding debts as soon as possible. This includes any money you still owe for either a car or house repossession.
Lenders look at overdue payments negatively. However, they’ll view someone with a past repossession who has since financially recovered in a more positive light. Moving forward, it’s essential that you make any payments on time.
A lender will look not just at your repossession but at your recent financial history while accessing your suitability for a mortgage. This means that your current finances need to be tidy. If you can't pay your bills on time, do what you can. It’s more important to pay something than nothing at all.
At Haysto, we work with specialist brokers and lenders who specialise in offering mortgages to people with bad credit. If you have a poor credit score and are looking for the right mortgage, we can help. Get in touch with us.
Lenders require evidence to access your suitability for a mortgage, regardless of whether you have had a repossession or not. Above all, lenders look for people who are stable and can therefore be relied upon to repay any debts. If you experience frequent changes of address, lenders may assume that you're unreliable and are unable to meet your credit repayments.
One of the easiest ways of increasing your chances of getting a mortgage is by registering on the electoral roll. Lenders use the data on the electoral roll to verify your identity and to access how stable you are.
The more recent the repossession, the less options you’ll have and the larger the interest and deposit. To be able to achieve a competitive rate, it is best to wait 4-5 years after repossession to apply for a mortgage. If you want to obtain the lowest possible rates, wait six years after a repossession. This is when you may be considered for a higher loan to value mortgage and will receive up to 5x your income.
If you can’t wait that long, speak to a specialist mortgage advisor for an in-depth analysis of your situation and options. They’ll know what lenders will offer you the best rates.
The larger the deposit, the more likely you are to be offered competitive rates. The larger the deposit, the smaller the mortgage loan. A substantial deposit can show that you are in a comfortable position and can afford to take on a mortgage. If you have had multiple repossessions, a larger deposit may help provide more options.
A specialist bad credit mortgage broker can advise you on the best way forward. All lenders have different criteria for accessing your suitability. A specialist mortgage broker will take into consideration your personal circumstances and financial history so that they can match you with the right lender. There are many different options which are available to you. These are often only found through a specialist broker. For example, MBS Lending will consider your application if you have had a repossession and some lenders will grant you a lifetime mortgage.
Over 50% of mortgages for people who are self-employed or have bad credit aren’t available directly to you. They’re only available through specialist brokers. Using our platform guarantees you’ll be matched with a broker who has a proven track record of making mortgages possible for people like you. Less processing, more understanding.
Applying for a mortgage or understanding your options shouldn't be confusing, yet there are just so many myths doing the rounds and it's not easy to know where to turn to get the right advice.
Our calculators give you an idea of what you might be able to borrow, what's affordable and a rough estimate of the kind of property prices you can start to look at.