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Recently, we’ve had difficult applications to finance where the client has mortgage arrears on their credit reports, which has meant certain lenders will not provide mortgages to them.
It’s an avoidable and costly mistake for potential clients, so please read on to prevent it from happening to you!
What is it that’s affecting landlords’ credit reports?
The background is, that when a loan or mortgage is set up the lender will write to you to confirm the date the payment is due. Having signed a direct debit mandate at application stage, there shouldn’t be an issue with collecting the payment.
However, we’ve seen cases where clients have moved the direct debit date, but this doesn’t change the due date!
We’ve seen a few cases where the direct debit was due at the start of the month, but the client moved the direct debit payment to the end oft he month. This is fine as long as the payment is collected within 30 days of the due date.
However, this doesn’t allow for mistakes to be resolved should they arise and prevent a mortgage from showing it has gone into arrears on the credit report.
How can a landlord’s credit report be affected?
Example A
- Payment is due on the 2nd of each month, and the direct debit is set for that date. However, because of a bank issue or lack of funds, the direct debit fails.
- The Bank phones or writes to the customer on the 4th of each month to advise them that the payment was not made.
- The client investigates and corrects the missed payment on the 10th of the month.
- The payment has not gone 30 days in arrears, and the credit report is not affected; to show mortgage arrears, they have to be greater than 30 days.
Example B
- Payment is due on the 2nd of each month, and the customer has changed the direct debit to be taken on the 25th of each month.
- On the 27th of each month, the Lender writes to clients who are away or fail to react quickly to the letter.
- The payment is eventually made within 10 days, but this is past the 30 days when the payment was due on the 2nd of the month. The credit report will now show the mortgage went 1 month in arrears.
Example B is all because the client moved the direct debit date too far from the due date, which did not allow enough time for errors to be corrected.
Our advice is to be very careful when setting up payment via direct debit much further in the month than the actual due date. If you are ever unsure, please refer to your lender for clarity.
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