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  • FIRST POST
    • The_Analyst
    • By The_Analyst 12th Jul 17, 1:29 PM
    • 22Posts
    • 17Thanks
    The_Analyst
    Bad Credit & Mortgage Equity
    • #1
    • 12th Jul 17, 1:29 PM
    Bad Credit & Mortgage Equity 12th Jul 17 at 1:29 PM
    So, after many years of careless spending, my wife and I entered into a joint DMP in 2011. Accepting the risk of having our credit rating destroyed, we sought to get our outgoings under control and start reducing what we owed. The plan worked well for about 5 years (£24k of our £47k paid off over 5 years). The plan came to an end in September last year when our provider/arranger, Vincent Bond deciding that they were stopping the administration of all Debt Management Programmes (possibly due to some new legislation that had come into force?)


    I contacted our creditors directly and set up managed payments with them all at around twice what we were currently paying (should've upped the DMP payments before then I know!) and with a bit of to and fro we've managed to budget so that all of our debts are paid off by Jan 2019.


    So, now my thoughts are now turning towards my(our) credit rating and how to repair it. i still have around 18 months to go before my debts are settled and I know it's then a long road to recovery before my file is clean again (the managed payments all still show up as defaults on my file). I started to think about whether I could release some of the equity in my house (min £35k) to pay off my debts sooner, and start repairing my credit sooner. Does anyone know if this is even feasible? I estimate that I have around £50-60k equity (house bought for £141k, current mortgage balance is £106k, but house prices in my area around the £150-160k mark)


    Would a lender take this on at all given my recent history? Is it too much of a gamble to put unsecured lending against a house (where presumably I'd be paying off more and for longer if I add it to my mortgage?)


    Add advice/experiences welcome


    Thanks
Page 1
    • Danni-R
    • By Danni-R 12th Jul 17, 2:51 PM
    • 594 Posts
    • 935 Thanks
    Danni-R
    • #2
    • 12th Jul 17, 2:51 PM
    • #2
    • 12th Jul 17, 2:51 PM
    If you take out £35k it'll take your mortgage balance to £141k. And it might be nice that that's what houses are going for round your way but that doesn't mean yours will. It will also put you in a massive risk of negative equity. By faffing around with your mortgage more than you need to they will run affordability checks etc.

    Continue on the DMP then use what you were paying to pay off your mortgage. Why would you want to take out £35k when you only owe £23k. Plus you're transfering not secured debt to secured.

    I just don't get it. Sorry.
    £2200 £1950£1850 £1600 on my credit card
    £5000 £6000 Savings
    £40 fund for holiday
  • National Debtline
    • #3
    • 12th Jul 17, 3:04 PM
    • #3
    • 12th Jul 17, 3:04 PM
    Hi The_Analyst

    Welcome to MSE and well done on paying off so much of your debt. The first thing I would say is if a default has been registered against a debt, it means the debt will drop off your credit file 6 years after the date of the default. It will make no difference to that default whether the debt is paid, the only thing it will mean is the debt is updated to show it has been satisfied.

    Any credit taken out against your property will be a secured debt. You can’t have unsecured credit that is linked to your property. Be very cautious about taking out secured credit to pay off your debts for a number of reasons. Firstly not keeping up repayments on secured debts puts your home directly at risk. Secondly you will pay interest on the new credit you take out, that means paying back more than you currently owe (assuming your creditors have all frozen interest). And thirdly it is unlikely you will be able to take out credit (or at the very least get good terms and conditions) if you have defaults on your credit file.

    It sounds like your best option could be to stick with your payment plan but you can seek advice on this from one of the free debt advice agencies. I hope it all goes well.

    Susie
    @natdebtline
    We work as money advisers for National Debtline and have specific permission from MSE to post to try to help those in debt. Read more information on National Debtline in MSE's Debt Problems: What to do and where to get help guide. If you find you're struggling with debt and need further help try our online advice tool My Money Steps
    • The_Analyst
    • By The_Analyst 12th Jul 17, 3:04 PM
    • 22 Posts
    • 17 Thanks
    The_Analyst
    • #4
    • 12th Jul 17, 3:04 PM
    • #4
    • 12th Jul 17, 3:04 PM
    Thanks Danni. Maybe by post wasn't clear. I have 15k debt that I am re-paying through Managed Payments after my DMP company ceased trading. I was wondering if I can use some of my home equity to pay off the 15k and start re-building my credit score. I wasn't suggesting using all the equity as I only want to pay off the debt. I acknowledge that putting unsecured debt onto a long-term mortgage means you pay more, but if it means I can start re-building my credit score sooner it feels like a risk worth taking.

    Alternatively I continue with my repayments until Jan 19 when they're all paid off.
    • EssexHebridean
    • By EssexHebridean 12th Jul 17, 3:07 PM
    • 8,199 Posts
    • 42,615 Thanks
    EssexHebridean
    • #5
    • 12th Jul 17, 3:07 PM
    • #5
    • 12th Jul 17, 3:07 PM
    I'd say stick with it. Altering unsecured debt to secured debt by borrowing against your home is really not advisable - look at it this way - at this point it's only your credit history that is at risk - if you then struggle down the line for whatever reason to keep up with increased mortgage payments you could be risking your home. You'll also almost certainly pay off a lot more over the term of your mortgage than you would in your current arrangement.

    One question though - why are you so worried about your credit history at the moment? If you're not planning on taking out any further credit then it's not really relevant - and once the defaults drop off you'll find things will improve quite fast in any event.
    MORTGAGE FREE 30/09/2016
    Sainsbugs 0% card: 22/12/16 £1229.00/£544.67 (17/10/17)
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    • The_Analyst
    • By The_Analyst 12th Jul 17, 3:08 PM
    • 22 Posts
    • 17 Thanks
    The_Analyst
    • #6
    • 12th Jul 17, 3:08 PM
    • #6
    • 12th Jul 17, 3:08 PM
    Hi The_Analyst

    Welcome to MSE and well done on paying off so much of your debt. The first thing I would say is if a default has been registered against a debt, it means the debt will drop off your credit file 6 years after the date of the default. It will make no difference to that default whether the debt is paid, the only thing it will mean is the debt is updated to show it has been satisfied.
    Originally posted by National Debtline
    Thanks Susie.

    Just so I'm clear, my understanding is that where I have defaulted on a loan (for example) my credit file will show monthly defaults from the date of the first default until such time as the balance is "settled". That final default will show on my credit file for 6 years until it drops off? So, if I settled my balance today, it would be August 2023 before my file is "clear" again, whereas if I keep on with my payments, and clear my balance by Jan 2019, it will be August 2026 before my file is clear.

    Is my understanding correct?
    • The_Analyst
    • By The_Analyst 12th Jul 17, 3:14 PM
    • 22 Posts
    • 17 Thanks
    The_Analyst
    • #7
    • 12th Jul 17, 3:14 PM
    • #7
    • 12th Jul 17, 3:14 PM
    One question though - why are you so worried about your credit history at the moment? If you're not planning on taking out any further credit then it's not really relevant - and once the defaults drop off you'll find things will improve quite fast in any event.
    Originally posted by EssexHebridean
    That's a really fair point - I suppose I want to make sure that I can take credit if I need it. Say the boiler blows, or the car breaks down? I want to be in a position to be able to get a loan for something like that in the future.....I don't have anything planned right now, but I want to be able to move house in the future, take out loans for home improvements etc....basically go back to being "normal" in the eyes of lenders
    • The_Analyst
    • By The_Analyst 12th Jul 17, 3:24 PM
    • 22 Posts
    • 17 Thanks
    The_Analyst
    • #8
    • 12th Jul 17, 3:24 PM
    • #8
    • 12th Jul 17, 3:24 PM
    I think I've totally mis-read the situation. Having done some research it appears that my defaults will disappear off my report 6 years after the initial default not 6 years after the debt is settled as I initially assumed.
    • Raven42
    • By Raven42 12th Jul 17, 3:34 PM
    • 16 Posts
    • 28 Thanks
    Raven42
    • #9
    • 12th Jul 17, 3:34 PM
    • #9
    • 12th Jul 17, 3:34 PM
    Well done for getting that level of debt to a more manageable level.

    Just a little warning on the mortgage issue, really don't involve it in clearing unsecured debt, mainly because it opens up the credit report to your mortgage company, the most important thing is keeping that up to date.

    Can I ask why the credit score is important? I speak as somebody whose score was wrecked and I thought it was the most awful thing ever but sit here 5 years later owning things instead of financing them and actually worried the trap will soon be open again.

    Good luck

    edit: Sorry just seen you've now answered my question I say get those payments drilled down on and start saving so when it comes to needing to borrow for an emergency you can go to yourself for the credit.
    Last edited by Raven42; 12-07-2017 at 3:38 PM. Reason: Answered question.
    • The_Analyst
    • By The_Analyst 12th Jul 17, 3:39 PM
    • 22 Posts
    • 17 Thanks
    The_Analyst
    Well done for getting that level of debt to a more manageable level.

    Just a little warning on the mortgage issue, really don't involve it in clearing unsecured debt, mainly because it opens up the credit report to your mortgage company, the most important thing is keeping that up to date.

    Can I ask why the credit score is important? I speak as somebody whose score was wrecked and I thought it was the most awful thing ever but sit here 5 years later owning things instead of financing them and actually worried the trap will soon be open again.

    Good luck
    Originally posted by Raven42
    Thanks. The Credit Score thing is something I never really gave much thought to, I suppose it's just a desire to "get back to normal" but I definitely have no plans to start taking out credit once my debts are clear. Moving house is maybe the one thing I can see in the next 5 years or so (if possible). I much prefer the "save up and own" rather than "finance" as a purchasing option. Suppose it's just nice to know you have that option.

    As per my previous post, I think I've mis-read the situation with regards my credit file - assuming you wait 6 years after settling a debt before it drops off was clearly wrong!!
    • EssexHebridean
    • By EssexHebridean 12th Jul 17, 3:51 PM
    • 8,199 Posts
    • 42,615 Thanks
    EssexHebridean
    That's a really fair point - I suppose I want to make sure that I can take credit if I need it. Say the boiler blows, or the car breaks down? I want to be in a position to be able to get a loan for something like that in the future.....I don't have anything planned right now, but I want to be able to move house in the future, take out loans for home improvements etc....basically go back to being "normal" in the eyes of lenders
    Originally posted by The_Analyst
    Two words: EMERGENCY FUND. As a homeowner, you need one - £1k is a good starting point. Also budget monthly for car maintenance stuff and include a small contingency figure in there - we stick £160 a month aside which covers two cars for tax, insurance, servicing, MoT, depreciative stuff like tyres, bulbs and wipers, and will usually go some way towards meeting any small repair bills too.

    I'll also say - you DON'T want to be able to take out loans for home improvements - you want to save for home improvements and then get them done knowing that the money is there. Believe me it's an entirely achievable thing and my goodness it feels amazing!

    I think I've totally mis-read the situation. Having done some research it appears that my defaults will disappear off my report 6 years after the initial default not 6 years after the debt is settled as I initially assumed.
    Originally posted by The_Analyst
    Bingo. Now that feels better, doesn't it!
    MORTGAGE FREE 30/09/2016
    Sainsbugs 0% card: 22/12/16 £1229.00/£544.67 (17/10/17)
    SOA Calculator for DFW newbies: Stoozing.com SOA Calculator
    • The_Analyst
    • By The_Analyst 12th Jul 17, 3:56 PM
    • 22 Posts
    • 17 Thanks
    The_Analyst
    Bingo. Now that feels better, doesn't it!
    Originally posted by EssexHebridean
    You're telling me! Credit File should start to improve by the start of next year - I was expecting it to be about 8 years or so based on my repayments. Happy Happy Analyst here!
  • National Debtline
    I think I've totally mis-read the situation. Having done some research it appears that my defaults will disappear off my report 6 years after the initial default not 6 years after the debt is settled as I initially assumed.
    Originally posted by The_Analyst

    Hi there again


    You're exactly right, the debt and default disappear 6 years after the date the default was initially registered. Although each month the debt will show as being 'in default', this is a status not a new default being registered.


    That's why paying your debt off quicker will make no difference to when the defaults disappear, and I wouldn't risk taking out secured credit to pay off your debts. Hope this helps.


    Susie
    @natdebtline
    We work as money advisers for National Debtline and have specific permission from MSE to post to try to help those in debt. Read more information on National Debtline in MSE's Debt Problems: What to do and where to get help guide. If you find you're struggling with debt and need further help try our online advice tool My Money Steps
    • The_Analyst
    • By The_Analyst 12th Jul 17, 5:23 PM
    • 22 Posts
    • 17 Thanks
    The_Analyst
    I can't believe I didn't know this already! What a massive difference this has made to me!
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