Need advice on opportunity to get on the property ladder

bexjane

I'm fairly new to the site so I hoping this is the best place for my post

I'm 24, married and me and my Husband are renting a property that we have lived in for just over a year now. The reason for my post is that we have an option to buy this property within the next two years and I need advice on how to get our acts together and make it happen. Given that we love the house, thinking of starting a family soon and can really see ourselves living here whilst doing that, it's something we really want to make happen.

We rent the house privately and the landlords are great. They are a married couple, approaching retirement and they really give us no hassle at all. They own six other properties that they rent out also. The house that we rent from them is the only one of the bunch that they lived in. They were in this place for over twenty years, raised their children here and done a lot of work on it (I have a friend who lives in the same street, the houses were built at the same time and are the same design so I have seen first hand the level of work they have put into making this house what it is). Their very genuine people, I can't stress enough that I trust them 100% in this situation.

We agreed at moving in that we would rent for 2-3 years and then they would give us an option to buy as they would be looking to sell it at that time, shortly before they retire. This would give us time to save a decent deposit to put down on the mortgage. We are now one year in and not had a great start. Problems with jobs have left us with very little savings and some defaults on our credit reports for paying several bills late on occasion.

My Husband has not long started a new job that is paying good money but previously worked for a company for two years, the last six months of which he never received wages on time (sometimes 2-3 weeks late, monthly pay). The place was going down the toilet but it took him six months to get out of there. Now mine and my husbands income combined is leaving us with around 50% left after all bills and expenses and I feel pretty confident we can get the money together over two years if our circumstances don't change drastically.
Here comes the first real question. Our landlords have recently said to us that should the time come and we were not quite there with the deposit they would offer help by way of adding up to £8,000.00 to our deposit and acquire this back by adding that figure to the value of the house...

Is this a good idea? Should I consider it an option if these circumstances arise? Like I mentioned above, they are really nice people. Genuinely seem to want to help us achieve this. They seem to have taken a liking to us and I think they like the idea of approving the people who will take over this property. What I want to know is what implications this would have on a mortgage itself, repayments, equity and all the other stuff I know little about.
The other issue is we currently have poor credit ratings. We have never had any credit of any kind. Never felt reason to as we've mostly had good earnings (around £45,000.00 per year combined at present, have earned more in the past). As mentioned above, the past six months have been a struggle and we have incurred some defaults. Add to that some petty debt from our younger days that we've cleared (fell victim to the Utility Estimated Bills a few times amongst a few others).
How can we repair this damage to our credit reports and increase our chances of getting accepted on a mortgage in two years? Is this even possible to do within two years? I've read about using credit cards strategically to strengthen a credit rating and would be interested to hear some thoughts on this.
Would also be interested on any tips to really buckle down and budget/save to our maximum potential.

Thanks for taking the time read and I hope I've give enough details.

CLAPTON

what exactly do your credit record say
how much is the house likely to be sold for
how much deposit will you have saved by then

princeofpounds

You are too trusting for your own good. I'm not saying that they are bad people, they may well be as great as you say. But you need to look after your own interests and saying 'I can't stress enough how much I trust them' is a silly way to approach the biggest commercial transaction of your life.

If they gift you a deposit and sell for a higher price you are obliged to report that to the mortgage lender, if you play by the rules. Most will immediately ignore it as a deposit these days (as it is nothing of the sort). So I would get on with saving. Visit the Old-style and DFW board for ideas on that.

As for credit rating, each lender will have their own ratings system that can be somewhat different. Some value very secure clients. Others are happy to have riskier clients that are potentially more profitable. There is no 'official' credit rating system and the key is to have no recent missed payments or other defaults or CCJs, be on the electoral roll and show you can manage a reasonable amount of credit without being totally loaded up to the eyeballs in the stuff.

beecher2

They can't just put £8,000 onto the value of the property - the lender will value the property themselves.

As for a mortgage, the defaults aren't going to help - you could post on the mortgage forum for more help.

Get saving, as much as you can and sort out your finances. Go onto Debt Free Wannabee forum for help - you can post a Statement of Affairs there

Annisele

kwright.mtc wrote: »

When you say we are obligated to mention the "deposit" circumstances to the lender. What are the implications of not doing this? Why exactly would you think it is a bad idea to not do so? Assuming we could manage the repayments at this amount.

At some point, the lender/the lender's solicitor is going to ask you the source of your deposit. If you lie, you'll be trying to deceive the lender into lending you money that it wouldn't otherwise have done - aka fraud. Consequences of fraud are not pleasant if caught!

beecher2

If your landlord gives you a discount on the price, they can't get it back again by upping the value. LTV will be based on the valuation or the price paid - whichever is lowest. You'll need a 10% deposit at the very least, and at present would need pretty much perfect credit to get a mortgage.

So if you have £10,000 saved (I assume fees will be saved up separately), the most you could pay for the house would be £100,000.

edit: crosspost so thought I'd emphasise that if you paid above the valuation, the mortgage company would use the valuation when calcualting LTV.

ViolaLass

kwright.mtc wrote: »

.
What has also been mentioned is applying a small discount on the price due to us renting the property for three years come buying time. Although this was nothing more than an off the cuff comment and I don't plan on factoring it in to anything yet.

Jumping the gun a bit but if I were in your position, I would definitely expect a discount - they don't have to get an agent (so save money there) and don't have to search for a buyer.

That said, you've still got the problem of your savings being far too small, their plan being nonsense and your credit rating shot to pieces by the sound of it.

beecher2

kwright.mtc wrote: »

Really? "Shot to Pieces"? The problem is a lack of credit history not a bad credit history. If we built upon this with getting a credit card and using it strategically. As well as anything else we can do. Would it still be THAT bad after two years?

We are renting the house for another 12 months minimum, buying or not (already agreed). Even if it's looking unlikely, worst case scenario we have started to remedy the credit scores and have some savings behind us.

Having defaults is pretty bad, and they stay on your file for 6 years I'm afraid. With such a low deposit, they will certainly harm your chances of getting a mortgage - you may well need a 20% plus deposit.

Annisele

kwright.mtc wrote: »

EDIT: I know I just said it's not a Bad Credit History but previously mentioned defaults. Contradiction I know! The defaults are few and with some intended repair the good points would vastly outweigh the bad points is my thinking. I could be completely wrong in my assumptions hence why I'm here. Could a small amount of defaults on a phone contract and utility contract hinder our chances of a mortgage that severely?

A single default is bad...defaults could be very bad indeed. However, some people say they have defaults when what they mean is that they have late payments (which is also bad, but nowhere near as bad). Are you sure you defaulted?

Lending criteria may well change over the next year or so, but as it stands if you're wanting a 90% mortgage at semi decent rates you need close to a perfect credit history.