How to get your house in order

Millions struggled to keep on top of household bills and debts when the pandemic forced businesses to shut and pay was slashed. 

Missed payments can harm your chances of getting a mortgage in the future, but experts say past credit mishaps do not mean all hopes of future borrowing are lost.

Nick Morrey, product technical manager at mortgage broker John Charcol, says: ‘Do not panic if you missed some payments last year, but it is important to face up to your situation and start repairing your credit score quickly.’ 

Struggle: Millions struggled to keep on top of household bills and debts when the pandemic forced businesses to shut and pay was slashed

Here, Money Mail explains how you can rebuild your finances to get the best mortgage possible. 

Switch to save

Having past credit issues will  not stop you from getting a new deal from your current mortgage lender when your deal expires.

If you are not asking for more money, your bank will not re-assess your credit report. Switching rates could free up cash, so do not linger on your bank’s costly standard variable rate. 

The average standard variable rate, which is the interest rate you pay when your mortgage deal expires, is currently 4.41 per cent, according to Moneyfacts. 

The average two – year fixed rate, however, is almost half at 2.58 p er cent, saving you £3,528, excluding fees, on a £150,000 mortgage. 

You can switch by speaking to your broker or bank, up to six months before your deal expires. 

Credit advice 

The more time that has lapsed between your application and your credit mishap, the better your credit score will be. 

If you need a new mortgage, a slip-up on a credit card or utility bill may not result in a no from a High Street bank. 

According to Citizens Advice, seven million people fell behind on essential bills last year due to the pandemic. 

Not all lenders record a payment as missed if it’s paid within 30 days. Factors that drive up your credit score include being registered on the voters roll, having stable employment, low levels of debt compared with earnings and spending room on your credit cards. 

The bank’s credit score requirements are also tougher when mortgage borrowers have less equity in their homes. For example, a family applying to borrow £300,000 on a £600,000 home (50 per cent equity) may need a lower credit score than one which wants to borrow £150,000 on a home worth £166,000 (10 per cent equity). 

Broker tips

Mr Morrey says: ‘It can be crushing to fail a bank’s credit score. But a decline isn’t the end.’ 

He recommends speaking to an independent broker who can access the specialist lenders on the market. 

With the help of a specialist lender, you could be in favour in two years. A two-year fixed-rate with Barclays, for example, costs 2.08 per cent if you have 20 pc equity in your home and no history of bad credit. 

If you failed the High Street check and missed no more than two consecutive payments on either a credit card, phone or utility bill in the past three years, but have been up to date for a year, you could get an 80 per cent deal with Foundation Home Loans or Pepper Money for 3.99 per cent. 

Missed mortgage payments are more damaging and switching to a lender that will offer you a deal despite them is costly. If you missed a mortgage payment in the past 18 to 24 months, you can expect to pay more than 6 per cent, so wait as long as possible before applying for a mortgage. 

Take time

Taking a mortgage with a specialist lender is not a forever move. Spend your time away from the High Street wisely by rebuilding your credit score. 

‘If I am advising borrowers who have failed the High Street credit score, I tell them to take a two-year deal,’ says Mr Morrey. 

‘To have a chance of securing a High Street mortgage you don’t need to wait six years for issues to disappear.’ 

If you have an impeccable payment history since your missed payment, lowered your credit card spending and can show stable employment, you may pass a High Street check when that deal expires. 

And if your house price has risen and your mortgage debt has fallen, you will have more equity and could access better deals.  

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