Halifax Lending Criteria - 5year old Default?

Allan1978

I have a bit of a problem. I have a halifax mortgage and applied for additional lending to convert our loft, it was approved about 8-9 months ago, but there was not enough equity so they could only approve an extra £10k and we needed £27k. However they told me that once the work was done, they would have no issues in lending the extra as it was only the LTV that prevented the higher borrowing, , provisional survey based on plans was well above the required level. Well we went ahead and borrowed the money from a family member, and now the work is complete we called them to ask that we kick it off again and organise a new valuation. He announced to me that we had failed the credit check. We have both checked our report and they are squeaky clean, except for a default I have from 5 yeras ago, fully settled on month 4, but I have had that through the last two new mortgage deals from Halifax, been with them 5 years. I am now high and dry, very embarrassed owing my stepfather £27k. How do I fix this?