Do I need a bad credit lender if my adverse is satisfied?

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This popped up recently with a customer. I thought it would make a useful post for those of you researching satisfied defaults and CCJs etc.

How do lenders view satisfied adverse?

There are typically 3 types of lenders. The view they take in general will differ.

  • High Street lenders will typically be a little more forgiving but it will still need to pass their credit scoring. So having the adverse paid off can help.
  • Building Societies are generally also a little more forgiving when it comes to adverse. The good and possibly bad is that it still needs to fit into their criteria. Having it paid off may help to open up more options.
  • Specialist (or Adverse) lenders will not normally be affected. They would more often than not say they will accept x adverse and regardless of whether or not it is paid off it will either fit or it wont. If it does fit, then you should be accepted for the mortgage.

But it is not quite that simple…

Although in general if adverse is satisfied it will give you more options and increase your chances of acceptance there are other things to take into account.

Will satisfying the defaults reduce your deposit? If so then we need to take that into account. If we were to assume you are buying a house for £100,000 and you have a £25,000 deposit, that means you are applying for a 75% LTV mortgage. With a 25% deposit it can help you overcome a fair amount of adverse at normal rates (assuming the adverse is not recent).

If you have 2 Defaults for say £50 each, I would say satisfy them as £100 should not make a huge difference. That should still mean you are able to keep your deposit at 25%. On the other hand if the defaults are say £2,500 each that could then put you on an 80% product which might make it harder to pass the credit check and so I would say maybe we need to think about the options and weigh them up a little more.

We also need to look at when they were satisfied. If Satisfied the week before it may not even appear on your credit report as being satisfied yet as it can take up to a month. If they were satisfied 12 months ago that will fare better than 6 months ago.

Summary

Really there is no black and white answer.

Primarily it comes down to the amount of adverse you have. If you have 10 Defaults registered 12 months ago, realistically even if they were all satisfied 12 months ago it is unlikely to pass a credit check with a high street lender or building society. That then leaves you with the specialist lenders and they do not usually mind either way.

Then your deposit comes into play, I think that is probably the second biggest factor.

Lastly it is everything else that can make or break a case. Where your deposit is coming from, income, time in employment, debts/commitments etc.

In short, Satisfying your defaults can help to get you a mortgage, but it is not a guarantee. The devil is in the detail. We would really need to look at your credit report in conjunction with the information on the rest of your circumstances.