Defaults on your credit file do not usually rule out releasing equity, but raising extra borrowing while a default is showing brings the two together in a way a straightforward rate switch would not. Lenders weigh how recent the default is, whether it is satisfied and how large it was, alongside the amount you now want to raise and the loan to value that creates.
This page focuses on raising money for other purposes, such as improvements or helping family, while a default is on file. If your aim is to clear the default itself through the remortgage, remortgaging with defaults covers that route.
On this page
This page covers
- Credit issue
- DefaultsUsually stays on your credit file for 6 years from the default date.
- Reason for remortgaging
- Raising moneyBorrowing more increases your loan to value, which can change the options available.
Read the main guide: Remortgaging to release equity when you have bad credit
In short
- Defaults do not usually stop you releasing equity, but they can affect the maximum LTV a lender offers.
- The default date matters more than whether the account has since been settled.
- Raising money and having a default are assessed together, which usually means a lower maximum LTV than for a like-for-like switch.
- Several defaults, or a recent one, tend to narrow the options more than a single older, settled default.
Your home may be repossessed if you do not keep up repayments on your mortgage. Think carefully before securing other debts against your home. Borrowing over a longer term can mean paying back more in total.
How does a default change a raise-capital application?
A default shows a lender or provider closed an account after missed payments. On its own, it is one part of your credit picture. Add extra borrowing to the mix, and a lender is increasing both your mortgage and your loan to value at the point it can also see a default, which is why some lenders set a lower maximum LTV for raise-capital applications with adverse credit than for a like-for-like remortgage.
The default date is usually more significant than whether the account is marked satisfied. A default from several years ago tends to carry less weight than a recent one, even if the recent one has since been paid.
Does it matter whether the default is settled?
Being marked satisfied shows the account was eventually paid, and some lenders view that positively, but it does not remove the default or shorten how long it stays on file, which is 6 years from the default date regardless of payment. For a raise-capital application, some lenders look mainly at how old the default is rather than whether it has been settled.
| Default profile | What some lenders may look for |
|---|---|
| Recent, unsatisfied | Often viewed most cautiously; some lenders may want it settled first |
| Recent, satisfied | Can be viewed more favourably than unsatisfied, but still recent |
| Over 2 to 3 years old | Frequently viewed more favourably, whether or not it is settled |
| Multiple defaults | Usually assessed more cautiously than a single default |
Illustrative only. This is not the criteria of any specific lender.
Does the size or type of default matter?
A default relating to a phone contract or a utility bill is often viewed differently from one relating to a personal loan or credit card, partly because of the amount involved. Some lenders may give more weight to defaults over a certain size, though this is not a fixed threshold. Our page on phone or utility defaults covers how these smaller entries are often treated.
Where the default was sold to a debt collector, the entry can sometimes look like two accounts rather than one, even though it relates to the same original debt. See a default sold to a debt collector if this applies to your file.
What else is weighed alongside the default?
A default alongside a higher loan to value from extra borrowing can mean fewer lenders and a higher rate than a like-for-like remortgage would attract. Borrowing only what you need helps keep your loan to value, and your options, as wide as possible.
- How many defaults are on file. Several tend to be viewed more cautiously than one.
- Your mortgage payment history. A clean record on your main mortgage can help.
- Affordability at the higher amount, including a stress test against a higher rate.
- What the extra money is for, which some lenders ask about specifically.
Getting advice before you apply
A specialist adviser who understands how different lenders weigh defaults against raise-capital applications can help you gauge realistically how much you may be able to raise before a hard search is carried out. If the default reflects a wider money worry, MoneyHelper, StepChange and National Debtline offer free, impartial advice.
What may affect releasing equity when you have defaults
| Factor | Why it matters |
|---|---|
| Default date | Usually matters more than whether the account is satisfied. Older defaults are generally viewed more favourably. |
| Satisfied or unsatisfied | Being settled is often viewed positively, but does not remove the default or shorten the 6 years it stays on file. |
| Number of defaults | Several defaults are usually assessed more cautiously than a single one. |
| Size of the default | Some lenders may weigh larger defaults more heavily than small ones, such as phone or utility bills. |
| Amount you want to raise | A larger raise-capital request increases both your borrowing and your loan to value. |
| Maximum LTV for raise-capital with your credit profile | Some lenders set this lower than for a like-for-like remortgage. |
| Mortgage payment history | A clean record on your existing mortgage can help alongside a default on other accounts. |
| Affordability of the larger mortgage | The new amount still has to pass an affordability check and stress test. |
These are general points, not lender rules. Each lender sets and changes its own criteria.
Information an adviser may ask for
You don’t need all of this to make an enquiry. It helps to know where to find it, because an adviser is likely to ask about most of it.
- The default date, amount and provider for each default on your file
- Whether each default is satisfied or unsatisfied
- How much you want to raise and what it is for
- Your current mortgage balance, deal end date and any early repayment charges
- An estimate of your property’s current value
- Your credit reports from Experian, Equifax and TransUnion
- Proof of income and your main monthly outgoings
Frequently asked questions
Can I release equity if I have a recent default?
It can still be possible, though some lenders may set a lower maximum LTV for a recent default than an older one. How recent it is usually matters more than whether it has since been paid.
Does paying off a default help me raise more equity?
It can help, since being marked satisfied is often viewed positively, but it does not remove the default or reduce the 6 years it stays on file. The default date still carries the most weight for most lenders.
Do multiple defaults rule out releasing equity?
Not necessarily, but several defaults are usually assessed more cautiously than one, and it can reduce the maximum LTV a lender will consider. A specialist adviser can tell you which lenders may take a more flexible view.
Is a small default treated the same as a large one?
Not always. Some lenders give less weight to smaller defaults, such as those relating to phone or utility accounts, though this varies. See phone or utility defaults for more on how these are often viewed.